Friday, October 23, 2015

New Lending Rules Are in Place

The dreaded new lending rules took effect earlier this month and local lenders seem to be reasonably well prepared. In general these new regulations have created a closing delay. This is no fault of the local loan officers or their staff. This is a delay that is essentially mandated as part of the legislation passed by the Congress.

It is important for both buyers and sellers to be aware that closing times are going to be extended on any transaction involving a mortgage. For the short term these could be delays up to 10 extra days. I would imagine that things will get streamlined as time wears on. The new law addresses among other things, the amount of disclosure required by the lender to the borrower, additional time for the borrower to review the lending documents and a post signing period by which the buyer can cancel the transaction. All of this adds up to additional time to close.

A thirty day closing on a home sale transaction involving a mortgage was always a tough nut to crack. Sure, it could be done and many lenders made bold promises. But often they could not be kept. The days of the thirty day close are most likely in the rear view mirror.

This is important mostly because sellers are often in contract to buy another home upon the sale of their home. If they agree to close on the new home in thirty days and the buyer of their home is unable to close on time then they have two problems that could be expensive. Real estate transactions are governed by serious contractual obligations by all parties. No matter what the lender promises on closing times, always give extra closing time on the contract. The seller is rarely obligated extend the closing date. Generally the seller will do so to keep the deal afloat, but they are not necessary contractually require to do so, with few exceptions.

The bottom line is to be patient and just write the offer with a 45 day close or maybe even a little longer. Here in Washington you can write an offer with a "on or before" closing date. This is an effective way to build in extra time to close even if your intention is to close quickly. If the buyers have challenging issues associated with the loan such as marginal credit scores or high debt to income ratios, additional time WILL be required. I spent a fair amount of time on the wholesale side of the mortgage industry and believe me, when the borrower is up tight against the minimum requirements, the underwriter looks at every little detail in that file. No matter what the optimistic loan officer says, that file will take longer to close.

The bottom line is to be prepared for a longer closing cycle and everything will be just fine.

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