On 10/03/15, the Consumer Financial Protection Bureau (CFPB) implemented a new rule affecting home loan disclosures. Here's what sellers need to know. It will allow consumers more transparency and a better understanding of the loan terms & process and hopefully prevent mass amounts of borrowers from defaulting on loans which they had little understanding of their obligations to repay. This new rule doesn't just affect buyers and sellers in the Phoenix & Scottsdale area. It's been implemented nationwide and will affect ALL US buyers & sellers involved in a sale with a financing.
Everyone Needs to Know:
- This only applies to real estate buyers using financing- it does not affect CASH sales!
- Communication is Key! Any/all contract changes should be sent to all parties (buyer, seller, lender, escrow officer, appraiser) quickly.
- The Lender is Important! Is the Buyer’s lender local (originating and processing loans in AZ) or an out of state lender, who may not be familiar with AZ closings? In AZ, a loan is “closed” not when ALL parties have signed but only when the documents are recorded with the county recorder’s office. In other states, the sale is “closed” when the Buyer signs the loan documents and the loan is funded. This difference can add a few extra days to the process of “closing” in AZ.
- Do not assume you can change most things at the last minute anymore. You can’t.
- Expect that some of this information may change. This is uncharted territory and many questions are still unanswered. We will update this information as soon as we have more clarity.
What Sellers Need to Know:
- Know what you are going to do if there’s a delay in closing. Have a back-up plan! If you don’t have one, are living in the home that’s being sold and/or if the money from the sale is earmarked to do something else right away, make one. Immediately.
- Become knowledgeable about the condition of your home. Do your homework. Repairs can be a nuisance, but previously could be handled with throwing some money at the issue or just reducing the price. Now, changes to the numbers, financing, credits, etc. may alter the structure of the Buyer’s financing, in turn triggering a new disclosure period. Strongly consider making the repair yourself instead of offering a credit or communicate with the lender on any potential risks of reducing the price or credits after the initial contract terms are finalized.
- Learn what you can about the buyer. I’m not talking about what their favorite color is and which school is their Alma mater. How much time have they spent looking for a home? How stable is their job in the eyes of a lender to get financing? How committed are they to buying YOUR home? All of these things add up to a buyer who will likely make the effort to get to the finish line- close of escrow.
- When contracts come in, they should be on the new contract labeled in the top left corner “Document updated September 2015”. If you receive anything else, question the agent on the other end of the deal.
- If a contract comes in and the lender is promising to get it done in less than 30 days, question the lender’s knowledge of the new rules and their ability to get it done adhering to them.
- Ask about and understand the terms of the buyer’s financing program. How well do they meet the guidelines to be able to get the financing? You need to know. No longer can you assume, “it’ll all be OK”.
- Choose your buyer carefully, especially if you're in a position with multiple offers! Consider all pieces of the sale that make up “the big picture”- buyer, buyer’s lender, buyer’s agent, the terms, etc. for every offer. No longer can you just look at one aspect (i.e. how much money did they offer) as the sole decision criteria to proceed- this hasn’t changed. However, the difference now is that if a buyer can’t do what he/she committed to in the offer, then you may lose valuable time when selling your home. Imagine you are at day 45 in a transaction and you receive the news that the buyer can’t close. The buyer may need either a new lender or loan program or YOU may need a new buyer… Are you ready to wait another 30-60 days? Do your best to choose a buyer from the beginning who is committed to seeing the transaction through!
You may have questions about all of this. Please call, text or email me and I'll do my best to give you a better understanding. Stay tuned for more...
READ: 9 Points Home Buyers Must Know About the New TRID Rule