Mortgage Topics

What Every Homebuyer/Homeowner Must Know

Four Key Elements Every Homebuyer/Homeowner Must Know

The Housing and Economic Recovery Act (HERA) passed by Congress in 2008 goes into effect today, July 30, 2009. The act which has many provisions primarily impacts the Truth in Lending Act requirements regarding early and final disclosures to homebuyers and addresses the timing of when fees can be charged.

There are four key items that homebuyers or people looking to refinance must now:

1. If the borrower is financing the property, these new regulatory and investor guidelines will impact, and could even dictate, the closing date of the transaction.

Historically, borrowers and sellers would agree on a closing date, and then service providers - including lenders - would work as best they could toward meeting that date. Going forward, contracts can still be written with a specific closing date in mind, but all parties need to take into account that the earliest any home financing transaction can close is 7 business days after the borrower is issued his or her initial mortgage disclosures from the lender.

2. Upfront fees cannot be collected by the mortgage originator (except for a credit report fee) until the initial disclosures are received by the borrower. Disclosures are considered received 3 full business days after mailing, allowing the fees to be collected on the fourth business day.

Historically, upfront fees could be collected immediately. Starting, July 30, 2009, upfront fees cannot be collected, including the appraisal fee, until 4 business days after the lender issues the initial disclosures (you receive a packet in the mail from the lender after you start the loan process). The only exception is the credit report fee which can be collected at application. This also means that the appraisal cannot be requested until the fourth business day.

3. The borrower must be provided with a copy of his or her appraisal a minimum of 3 business days prior to closing. The appraisal is considered “received” 3 business days after mailing.

To help expedite the process, the lenders have elected to have a copy of the appraisal issued directly to the borrower – and the borrower must receive the appraisal at least 3 business days prior to the mortgage closing. This means the borrower may receive his or her appraisal before or simultaneous to the mortgage originator receiving their copy. If the borrower believes that the 3-business-day required review period is not necessary for whatever reason, he or she has the right to waive the requirement.

4. An increase of more than 0.125% in the Annual Percentage Rate (APR) from the initial Truth in Lending Disclosure (TIL) requires the TIL disclosure to be revised and reissued to the borrower. The borrower must receive a revised TIL disclosure at least 3 business days before closing, providing the borrower with the time required to determine if the borrower is comfortable with his or her loan choice. Again, the TIL disclosure is considered “received” 3 business days after mailing.

A more typical contract date may be 30-45 days – or possibly longer. Considering that many things occur and may be changed or finalized through the course of the transaction, there are a number of things that can impact the borrower’s APR. Therefore it is critical on the front tend to ensure that estimated fees are as accurate as possible.