On 10/03/15, the Consumer Financial Protection Bureau (CFPB) implemented it's new rule affecting all home loan disclosures. 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 buyers using financing- does not affect CASH purchases!
- 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 Buyers Need to Know (TRID's main purpose is to protect you!):
- Start comparing home loan interest rates and lenders BEFORE you find the perfect house. It’s now or never- once you are under contract you need to be ready to commit to your lender & give him/her any/all of the following:
- Pay stubs
- W2s or 1099’s
- Tax returns- personal & corporate, including schedule K-1’s, if applicable
- Proof of Down payment/Reserves (bank and/or asset statements)
- Gift documentation (if you will be using gift funds)
- Other credit/liability documentation
- There is no more Good Faith Estimate – it was replaced with the “Loan Estimate” or LE
- After you execute the contract, you have 3 days to give the lender the following (remember “ALIENS”):
- A-ddress of the property
- L-oan amount
- I-ncome
- E-stimated value or the purchase price
- N-ame of the borrower (YOU & co-borrower, if applicable)
- S-ocial Security number of borrower(s)
- The first 3 items (A-L-I) can be collected up front when you start talking to a lender. The last 3 items (E-N-S) can ONLY be collected after you have an accepted contract! Your failure to submit this info may result in your breach of contract. This means the seller may issue a “cure notice” requiring you to “cure” or fix your breach in 3 days. Your failure to comply may result in you paying the seller “liquidated damages”- forfeiting your earnest money deposited with the escrow company.
- The loan estimate expires after 10 days; before the expiration, you must:
- Give the lender your intent to proceed
- Sign/return all lender disclosures & required documentation (see Item 1!)
- Your failure to do “a” or “b” may result in having to start the process again and potentially lose up to 10 more days to complete your purchase by the agreed close of escrow date…
- Ask your lender questions about your interest rate! Specifically, find out when the lender will lock in your rate and how long you will be locked in at that rate. Also, just in case, find out the cost to extend your rate lock and/or to buy down your rate.
- Last-minute changes to the loan program, an increase in interest rate (0.125% for fixed loans; 0.25% increase for adjustable loans) or adding a prepayment penalty can delay a deal, or break it if the seller is not willing to agree to a contract extension.
- You must receive your closing disclosure (CD) at least 3 lender days[1] prior to loan “consummation”, (the date you sign your loan documents), for your review if emailed or mailed (USPS). If the CD is delivered in person, it can be considered delivered on the same day. So, simply put, you should have your CD 6 “lender days” prior to the day you will be closing, unless you have will see your lender in person. If you’re short, plan on adding that number of days to your actual closing and plan accordingly, which may require a contract addendum to extend the closing date- both you and the seller must agree in writing. (See P3 of chart: http://www.ctitle.net/system/files/Reference%20Guide%20CD-TRID%20Rule%20Requirements%203-30-15.pdf )
- Per our AAR purchase contract, you must have signed your loan documents at least 3 days prior to the actual close of escrow (the recording date) or you could again be “cured” for breach of contract. This has NOT changed- it’s always been this way.
[1] There are 3 types of “days” in a purchase contract:
o Calendar days- common to the AZ Assoc. of Realtors (AAR) and what governs our residential contracts
o Lender days- days the lender is primarily open for business; typically Monday through Saturday, but be sure to check with your lender for clarity!
o Business days- working days of the week (M-F), excluding major holidays (Memorial Day, Labor Day, Thanksgiving, etc.). These are the days that the county recorder and frequently title/escrow companies work by.
READ: 7 Points Home Sellers Must Know About the New TRID Rule
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