As of the beginning of October, applying for a home loan has changed quite a bit, and it’s leaving some folks in our other service areas pretty confused. Despite its intent to clarify the home loan application process, it’s muddied the water a bit as lenders, real estate agents, buyers and sellers all learn to navigate these new waters.
So we put together a two-part Q&A guide to help buyers better steer through the murk. Part One focused on the rule change, defining the new guidelines and discussing what happens once the application is approved. Part Two has more to do with the application itself, as well as how the new rules change the negotiation and closing process.
Here’s a Quick Recap of Part 1:
The changes effect the home loan application, closing process, and preapproval timeline.
Historically, the home application process can be unclear, the costs of the mortgage, closing and other fees incorrect or incomplete. The new rule, called TRID, simplifies the process and makeshome buying better for consumers.
Now, once you apply for a loan, you will get a Loan Estimate Form that has all of your mortgage costs down to the penny. Lenders are required to get that to you no more than 3 days after you apply for a loan.
No less than three days prior to closing, you will also receive a Closing Cost Disclosure form that lists line-by-line the exact cost of closing. Because of the precise nature required in these forms, any changes during negotiations and closing will drastically impact the actual closing date.
Q: How do these new rules change the preapproval process?
A: This is where the water gets a bit muddy. A preapproval (and prequalification) is not an official loan application, and will not require a Loan Estimate form be provided to you. Therefore, the preapproval estimated fees and monthly payments cannot be considered final.
The time you have to shop for a home after preapproval will also change. Because of the extent of the new rules, about two extra weeks will be needed during closing. This means that if closing on a home in your area takes about 30 days, it will now take about 45 days. What it ends up doing is giving you less time to shop before your preapproval expires. Where you once had 90 days, now you will only have 75 days.
The purpose of this is to give you more time during closing to ensure everything is in order and you completely understand the process.
Q: How has this changed the loan application process?
A: Most people shop around for a loan. If you were to apply for a loan at a lender in Witchita, KS and then another in neighboring Missouri, they may require a different set of information from you. This sort of confusion resulted in a big grey area for what to define a “true application.” Because the new Loan Estimate form by law must be sent three days after the application is completed, they needed a firm definition of who could be considered a true applicant.
Now, though, that entire process will be identical at any lender. You will be required to bring in six pieces of information before you are considered a true applicant:
- Your name
- Your income
- Your Social Security Number
- The property’s address
- The estimated value of the property
- The mortgage loan amount you want
This doesn’t mean you won’t be asked by lenders to provide more information, but once you do provide these six items, you have officially filled out an application and must be sent a Loan Estimate form within three days. You will then have 10 business days to decide if you want to move forward with the loan and onto closing.
Q: What if something happens to change the loan amount or terms?
A: There are things that can come up during the closing process, like a tree falling on the house, which could drastically impact the loan amount. Or a buyer decides they want to change their fixed rate to an adjustable rate. While it may not entirely derail the process, it will delay it significantly. The lender will have to issue a new Loan Estimate form based on appraisal or loan terms.
Q: What happens when during the final walk-through, I find a major issue not previously disclosed that could change negotiations?
A: Again, this is not an uncommon occurrence. You do a final walk-through the day of closing, and with the furniture out, you find a huge hole in the wall that was originally covered up. If that issue ends up at the negotiation table, this will also delay the process. If negotiation terms change, then a new Loan Estimate form and Closing Cost Disclosure will once more need to be reissued. We recommend moving the final walk-through up to a few days prior to closing. It will also be important to be more thorough in your original and subsequent viewings of the home.
Q: What does this mean for people who are have to be out of their home and into the new one by a certain time?
A: This is the toughest question we get, and the best answer we can provide is: Try your best to have a backup plan. We don’t recommend buying and selling within the same time, because if even one of those is delayed, it will be by more than just a few days. Get a plan in place that includes where you can stay and where your things can go if the worst does happen and the closing date is pushed back by a week or so.
Just as in Part One, this is a lot of information to take in. But the point of these changes is to protect you, the buyer, from misinformation and confusion. While the road may continue to be a little bumpy as we all learn to work through the changes, all of it is designed to help you make a much more informed decision when completing such a big purchase.
When it’s time for you to apply for a loan, we’ll be happy to help from start to finish!
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