Real estate tip: Changes in home loans

lauren and scottsponsored post by Lauren Hruby and Scott DeVouton

Home loans have been in the news lately, and not just for low interest rates. Big changes in the loan business went into effect on October 3rd, and they will likely affect every step in buying a home. Whether you’ve been through the process before or you’re a first-time home buyer, you should know what to expect.

The changes are related to lender disclosures required under federal lending law, what is known as the “Truth-in-Lending Act/RESPA Integrated Disclosures,” or “TRID”. Fortunately, the changes are designed to consolidate some of the many forms you see at or before closing. Along with a presumably more streamlined process, there are also some new timing requirements. Change is upon us, and you should know what to expect.

Four old forms have been done away with, most notably the “HUD-1” disclosure. These forms have been replaced by two new documents. You will now receive a Loan Estimate Form at the beginning of the loan process, and a Closing Disclosure as you approach closing.  Each document is required to be more precise, and must be sent to you within three business days of your loan application (the Loan Estimate Form) or three business days before closing (the Closing Disclosure).

Former rules left lenders with a lot of leeway regarding information collected at the beginning of the loan process. This often led to buyers not knowing the total cost of their loans until later in the process.  The new rules and the Loan Estimate Form create the same, clear requirements for every lender, which will hopefully result in buyers who are more informed and can more easily compare costs.

Former rules also led to buyers sometimes not knowing how much to bring to closing, even the day of. The Closing Disclosure is designed to give specific cost information, in ample time to allow you to plan for closing. If the 3-day requirement is not met for the Closing Disclosure, the loan cannot close on time.

Last minute changes are worth noting.  Namely, if something changes in the purchase, to accommodate for repairs after inspections, for example, will another three days be required for a new Closing Disclosure?  Most changes will not require a new 3-day wait. In fact, just three changes will trigger a new wait time: If there is an increase in your interest rate, at least ⅛ of a percent for most fixed rate loans or ¼ of a percent for most adjustable rate loans; if you change from a fixed rate to an adjustable rate; or if a prepayment penalty is added to your loan. Otherwise, changes can be accomplished by just amending the Closing Disclosure.

What do these changes mean for Kansas City real estate? Most sources recommend that we plan on each deal taking an additional two weeks to close. So for a deal that would normally close in 30 days, we would expect it to take 45 days to close. You should also avoid back-to-back closings, where you look to close the sale of one home on the same day you purchase another. Finally, you should take care of ancillary items, such as home insurance, earlier in the process, usually as soon as you have a contract in place.

A big takeaway from all of this is that everyone needs to be on top of the process. That will mean being responsive to requests for information from potential lenders and the lender you end up working with. It will mean completing negotiations with the seller as soon as possible, and avoiding last-minute negotiation surprises. It will mean you and your agent communicating quickly and effectively about anything material to your deal.

The new TRID rules and forms will see a lot of people getting used to a new way of doing things. Lenders are largely impacted, but title companies, escrow agents and real estate agents will also feel the stress of change. Make sure to stay in close contact with each of these people, return phone calls, texts and emails, and keep everyone in the loop, especially if anything changes in your world.

For anyone who wants more information, the Consumer Financial Protection Bureau offers a lot, and it’s fairly easy to digest.  The CFPB also provides information for real estate agents. If you will be purchasing a home in the near future, talk to your real estate agent or lender about how the process might look.  It’s really not that scary if you know what to expect.

Author’s Note – If you enjoy reading our Midtown KC Post articles, and might be buying or selling your own home, please contact us. We enjoy writing these, and love helping people.

Lauren Hruby Real Estate


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