As a home buyer or home owner refinancing, you have new rights that did not exist before the Mortgage Disclosure Improvement Act.
Here are five facts you have the right to know (and that might surprise you):
1) The lender is required to provide you with the Good Faith Estimate and other disclosures within three business days of receiving your full and complete application.
You sign the disclosures to verify that you have received them and to indicate your intention to proceed with the loan. The disclosures are not a contract; therefore, they do not obligate either you nor the lender to close the loan.
2) The lender cannot allow you to sign final loan documents before you have had at least seven days to review the initial disclosures.
This means no more super fast three-day or five-day closings as sometimes happened when a home buyer’s first lender let them down and the closing date was upon them. The new law puts a speed limit on closing your loan.
3) The lender cannot ask you to pay for the appraisal nor can they require you to pay an application fee or any other lender fee before they give you the Good Faith Estimate. The only fee a lender may collect prior to disclosure is the cost of the credit report (which is usually about $25 to $35).
If a loan officer asks for your credit card information or for a check at the time of taking an application, this is a violation of the law and punishable by a fine of $5,000 and/or one year in prison (for each instance).
4) The lender must provide you with the appraisal report as soon as possible/feasible after it comes in from the appraiser — but it must be at least three days before closing.
This three-day rule could further delay a closing and might cause hardship to the home buyer; therefore, the home buyer has the right to waive the three-day requirement in the “case of an emergency.”
5) If the Annual Percentage Rate changes by a miniscule 0.125% or more between the initial disclosure (or an updated disclosure) and the final APR, the lender must give you a new disclosure and wait another three long days before you can sign final loan documents. This applies even if the change is in your favor!
(This is a change to the APR, not to the interest rate on your Loan Note. The APR is your Note rate plus some of the closing costs rolled in and amortized over the life of the loan. Therefore, a change to the APR is less significant than a change would be to your actual interest rate on the Note.)
So if the loan officer over-estimated one of the closing costs that are calculated into the APR — or if the loan officer was able to do you a favor and get a lower interest rate than expected — then you are penalized by three days as a result of this good news.
If your closing date is fast approaching, this is a problem. Let’s say you need to move out of your rental by the last Friday of the month and that is your closing date. It is the day before signing, and you cannot tolerate any delay. What happens if the fees come in lower so that you get an APR that is 0.125% less than the original disclosure?
You have the choice of not taking advantage of the savings or not closings on time, thanks to this new law passed by politicians who have never actually worked in the mortgage industry.
There is more to the new lending laws, of course, but I think that is enough frustration for one blog post.
I don’t like to end with bad news, so now for some wonderful news: Very soon I will make an announcement that says I am accepting clients for loans again. Watch for that news, coming soon!