The Change from HUD to Closing Disclosure: What Does It Mean?
A series of new procedures was put in place this past August to improve the home closing process. The changes resulted in the removal of the antiquated Good Faith Estimate (GFE) and HUD-1 forms. These data sheets have since been replaced with Loan Estimate and Closing Disclosure forms. The changes were implemented to alleviate home buyer anxiety and boost overall transparency. Let's take a closer look at the importance of these alterations from the perspective of a home buyer, title officer and real estate attorney.
A New Closing Process
The Truth in Lending Act disclosure form, Good Faith Estimate form and the HUD-1 settlement form are out while the Loan Estimate and Closing Disclosure forms are in. The general public can learn more about these forms by visiting the Consumer Financial Protection Bureau's website. This group has assumed responsibility for the Real Estate Settlement Procedures in place of HUD. The closing procedure has new rules, one of which mandates that all forms be prepared and fully ready at least three days before the closing occurs. If any last minute alterations must be made, another three-day pause is implemented. The new closing rules apply mainly to loans in which the property is used for personal, household or general family purposes.
When a lender is provided with specific information as defined by TILA-RESPA Integrated Disclosure Rules, it has a certain amount of time to give the buyer a loan estimate. This document contains a summary of the loan along with costs. Its purpose is to empower the buyer to have a comparison tool at his disposal while he checks in with other lenders for a home loan. If the buyer has merely made a loan application, the lender is not permitted to request documentation. However, if the buyer desires to begin an evaluation of the application, he must submit the required documentation as early as possible. Buyers are also required to inform lenders of all known costs that relate to the transaction. This information must be provided during the application process. Without this information, the lender will not be able to prepare an accurate loan estimate. Such expenses must include a transaction fee along with the cost of a home inspection.
Prospective lenders are barred from charging fees to buyers for the processing of loans, except for a credit report fee, until the buyer has notified the lender of his intent to proceed.
Identifying the Motivation for Change
The changes outlined above have been put in place to make the home buying process much more transparent for buyers, lenders and all other parties associated with the transaction. These changes will catalyze transactions as they force both lenders and buyers to discuss all of the necessary information required to prepare a comprehensive Closing Disclosure along with other pertinent details far in advance of the closing. If you have any other questions about these changes, do not hesitate to contact the Law Offices of Mery Lopez.