The Consumer Financial Protection Board (CFPB) changed the closing process for all loans originated after October 3, 2015. Here is how these changes will affect you.
The changes were designed to make it easier for consumers to understand important information about their new mortgage, and to give them more time to review documents. Consumers are now informed earlier in the process how much cash they need to bring to closing.
Here are three things that borrowers need to know about the new closing process:
- There are different forms
- New waiting periods have been introduced
- It may take longer to close
Within three business days of applying for a mortgage, you will receive one form called the Loan Estimate. This form clearly states:
- Loan terms (amount of loan, interest rate, monthly payments)
- Closing costs, including any points and a description of all fees
- The amount of cash you will need to bring to closing
- Which fees and services you can shop for and which are set by the lender
Three days before you are legally obligated to the lender for the loan, you will receive the Closing Disclosure, which lists your finalized costs. Closing may be delayed if there are any changes to the loan terms after you receive the Closing Disclosure form.
The new process introduces different waiting periods. While this gives consumers more time to read and understand what they are signing, it will probably take longer to close on a home loan. According to the National Association of REALTORS®, a real estate transaction that would typically take 30 days to close will probably take 45 days under the new process.
Refinance versus Purchase Loans
The new process applies to both refinance and purchase loans. However, there are additional implications when you are purchasing a home. All terms of sale must be finalized 7 to 10 days ahead of closing. Changes that result from final inspections and walk-throughs are permitted but may result in a new 3-day waiting period, which would delay closing.
Bottom line: The new closing process is designed to protect consumers but it may not account for unexpected twists and turns that often occur in a real estate transaction. It’s important for consumers to be aware of potential delays in closing and plan accordingly.