A recently passed law by the Consumer Financial Protection Bureau may put a cramp in your closing dates.
Effective October 1st, 2015, lenders must deliver a “Loan Estimate Form” (formally a Good Faith Estimate) to the borrower 3 business days prior to close (in this case Saturday is considered a business day). Think of it as a right of rescission (like on a re-finance) where the borrower has a right to reject or change their mind after reviewing the terms presented to them on this form. Certainly a good thing for consumers!
Before this form can be generated 2 things have to happen and in this order;
1-The loan has to be unconditionally approved (no prior-to-doc conditions…ready to order docs).
2-Lender needs a copy of an estimated settlement statement (now called a “Closing Disclosure” from the escrow officer (typically takes a day or two for the escrow officer to prepare and email it to the lender).
Once the lender has received the Closing Disclosure and prepared the “Loan Estimate Form”, then it’s delivered to the borrower. The borrower must be allowed 3 business days (includes Saturdays) from receipt to review the document (timeframe starts next business day).
Loan documents cannot be ordered during this time nor can we close! Also if there is a change by 1/8% on the interest rate, a pre-payment penalty is added OR if a credit has been added to the terms of the contract, a NEW 3 business day time period will then be implemented.
Some things to think about;
We need full loan approval no later than 12 days prior close. Here is the breakdown in a perfect world;
Day 12-Unconditional Loan Approval
Day 10-Escrow prepares/delivers the Closing Disclosure to the lender (apx. 1-2 days)
Day 9-Lender prepares the Loan Estimate form and delivers to borrower (apx. 1 day)
Day 6-Three business days (including Saturdays) for borrower to review docs
Day 4-Loan docs delivered to title (apx. 2 days)
Day 3-Buyer signs closing papers
Day 2-Loan docs sent back for underwriting review
The best way to find out if there is going to be a delay in closing is to ask the loan officer, “When was the Loan Estimate Form delivered to the borrowers?” From there you can calculate based on the above when approximately you will close.
30 day or less closings will be extremely challenging so be cautious when writing offers and check with the lender first!
During this transition, many of our team members will unfortunately be caught unaware of this new system. Be sure to check in with the lender and escrow officer to ensure disclosures are being prepared and delivered to the buyer in a timely manner. Also, prepare your client for potential delays in closing until new systems are incorporated to manage this new law.