Sometimes when I get to the closing table clients will tell me, “It’s About Time.” Especially first time home buyers who are anxious to get into their new homes, but they have to wait on their lenders and the title company to have everything ready for closing. Then there are those cash buyers that think we should be able to close a home purchase in just three days!
In today’s real estate market it takes a minimum of seven days to close on a home purchase. That is because a recent Real Estate Settlement Procedure Act disclosed rules stating that lenders cannot close a loan until seven days after they have provided the borrower with the original required RESPA disclosures and application (including the Good Faith Estimate and Truth-In-Lending Disclosure). This is a consumer-protection measure designed to help ensure that a buyer has enough time to read and understand a loan before the closing.
If there are any last minute changes to the loan amount, purchase price, or seller contributions that will add three extra days to the closing. RESPA now requires lenders to again provide the Truth-in-Lending Disclosure when the annual percentage rate changes 0.125% or more from the original disclosure of the APR on the Truth-in-Lending Disclosure—every single time. Some lenders interpret this to mean that a re-disclosure is required only when the APR increases, while others require a re-disclosure when the APR changes 0.125% regardless of the direction of the change. This is a protection that was put in place to prevent lenders from changing the loan note rate or fees on borrowers at closing without proper disclosure to the borrower.
Something else that slows down closings is when the buyer has not filed their tax returns. All Self-employed borrowers must provide tax returns to their lender. Consumers want to know why closings are being pushed back or why they fall through completely. If you are the seller, you are really angered when the sale falls through and you have to put your house back on the market when you were already preparing to move out. Below is an example to explain one of the many things that can go wrong…
A couple wants to buy a home. The wife is a W2 employee and qualifies for the loan on the home. The husband is self employed. Under new lender rules, the lender has to request the tax returns for the past two years for the self employed spouse and could even require the financials for his company. The lender has to then consider his business losses a liability, which affects the amount for which they can qualify. See where I am going with this? It is common for self employed people – especially those operating an LLC, LLP, or Subchapter S corp – to run their businesses at a loss. Sometimes this is the difference between pre-qualified and pre-approved.
All of these new lending regulations can slow down or derail real estate transactions, so understanding the requirements will help you to be better prepared for your mortgage process so that you can close on time. If you would like to pre-qualify for a mortgage, please contact RREA’s in-house lender at 281.288.3500 to get started on your path to home ownership. We have Realtors that can provide you with a smooth transaction – from house hunting to the closing table. Call us for more information.