7 PITFALLS YOU MUST AVOID TO PROTECT YOUR PURCHASE: THE NEW MORTGAGE DISCLOSURE IMPROVEMENT ACT

The new Mortgage Disclosure Improvement Act took effect July 30. Now, changing ANY aspect of the terms of purchase or loan can delay or kill your real estate deal. In the past we could willy nilly change various details between signing a purchase deal, and closing a few weeks later. No more.

These tips come from Darla Jones, long time trusted loan expert, and Associate Vice President of Bank West here in Rapid City. Darla sent these pointers, which sum it up pretty well.

Overall, there are 4 major reasons behind this law, created to protect consumers who apply for a mortgage. Here’s how it affects sellers, buyers and perhaps you, too.

• Uniformity – Every lender must now use the SAME Good Faith Estimate. It’s easier to read and includes detailed mortgage loan terms, estimated closing costs and annual percentage rate. The term “business days” has been defined and means Monday through Saturday, EXCEPT federal holidays.
• Disclosure – If anything changes during the processing of the loan – if the loan terms change, the down payment, closing costs, APR (by no more than 1/8% higher), another disclosure MUST be sent to the consumer.
• Waiting Periods – The consumer is given “time” to review all disclosures. There is an extra layer of protection where there is a 7-day waiting period before the loan can close.
• Comparison Shopping – The new Good Faith Estimate Form now includes a section called “Using The Shopping Chart.” It encourages consumers to compare loan terms, closing costs and interest rates with up to 3 other lenders.

What You Need to Know

• When negotiating the date of closing, make sure it’s flexible and there are no penalties for not closing on the specified date. The waiting periods are “federal law” and preclude the terms in the written contract.
• No last-minute down payment changes.
• No “floating the interest rate” until the last minute. Encourage your buyers to lock in at least 7 to 10 days before the projected close date.
• No switching of lenders at the last minute. The disclosure process starts over again with another lender.
• No waivers – unless it’s a hardship with tens of thousands of dollars at stake because the law is written as such that a “waiver” will be virtually impossible to obtain.
• Notify your loan officer if anything … and that means ANYTHING … changes on the purchase agreement. This could require a re-disclosure and delay the closing.
• Appraisal disclosure plays a part in this, too. Even if all loan disclosures are met, the consumer has another 3 days to review their appraisal.

BOTTOM LINE

The days of negotiating the deal at the last minute ARE OVER – unless buyers and sellers are prepared to delay the closing date.