Why Your Home Sale Just Got Longer

Home Sale FormsAbout a month ago (October 3, 2015), new mortgage rules went into effect. These rules, created by the Consumer Finance Protection Bureau (CFPB), are designed to make the mortgage process more understandable to the person borrowing the money.

It combines parts two existing programs – the Truth in Lending Act (TILA) and the Real Estate Settlements Procedures Act (REPSA) – and creates a couple of forms that are supposed to be easy and simple for the average home buyer to understand. This is now known as TRID. (TILA – RESPA Integrated Disclosures)

The forms really are fairly simple to understand and the first form the home buyer gets is the Loan Estimate which is supposed to spell out the terms of the loan the home buyer is getting. This is something that the CFPB is calling “Know Before You Owe”.  It’s supposed to give the home buyer time to shop around for the best mortgage from various lenders before he or she commits to one particular mortgage company.

That’s sounds good but there is a small downside for the home seller.

The Loan Pre-Approval

Over the years, mortgage companies have gotten into the practice of issuing loan “pre-approvals” for prospective home buyers. Some lenders were better than others as far as really investigating whether or not any particular home buyer was really qualified to make the purchase. However, if they got w fairly reputable mortgage company, the pre-approval was usually something they could use to assure the home seller that they could buy the house.

Now, the mortgage company needs a specific address in order to move forward with serious investigation of the home buyer. Once the mortgage company has an address and some other information, the home buyer has three (3) business days to review the Loan Estimate. That’s a minimum. The home buyer can really take as long as he or she wants and shop ’til the drop for the perfect mortgage with the perfect terms and interest rate.

Meanwhile, the seller is hanging loose waiting for the thumbs up that the home buyer has chosen a mortgage company and give the the green light to proceed with the most important parts of the financing process. Things like the home appraisal and the mortgage underwriting.

The Closing Disclosure

After everything is just about wrapped up – home inspection, home appraisal, mortgage underwriting, etc. – the mortgage company needs to send the final Closing Disclosure to the home buyer at least three (3) business days prior to the actual date of settlement listed on the contract of sale. If there is any substantive changed in any of the loan terms that need to be change the three day clock starts over.

The reasoning behind this is equally benign. The CFPB doesn’t want mortgage companies to switch terms or conditions of the loan at the settlement table or the day before when the buyer really can’t or won’t do anything about it. This actually happened quite a bit during the rah-rah days of the housing bubble. However, these types of shenanigans have mostly disappeared in today’s ultra risk averse housing market.

Nevertheless, if something needs to be changed prior to settlement, the home buyer (and the home seller) will need to wait another three (3) business days to get to settlement.

Hurry Up and Wait

What this really means for the home seller is just a whole lot of uncertainty about when the real estate settlement will occur. Most likely, real estate agents will start factoring in all these review periods and waiting periods into the contract of sale. So, instead of the normal 30 day “offer-to-closing” period, it will be more like 45 days or even 60 days.

There may also be a clause written into the contract of sale about the possibility of the delayed settlement

The Bottom Line

People will still be buying and selling houses. Title companies and mortgage companies and real estate agents will need to learn to work more closely together (not something that normally happens in today’s environment pre-October 3rd). It will be necessary for real estate agents to have a serious “sit down” with the seller to let them know what might or might not happen.

It’ll be taking longer to sell your house.

So, if you’re thinking of selling your house and you have a good idea of when you want to be in your next place, it’ll be good to add a little extra time into your thinking. The days of the 21 day or 30 day settlement are gone.

Chart of the Day – Average Home Sale Price for Bowie, MD 20715

About Ken Montville

Ken Montville is a Realtor® and Associate Broker with RE/MAX United Real Estate in the beautiful Maryland Suburbs of Washington, DC. He has been selling nice homes since 1999. Way back in the 20th Century.

When Ken Is not doing the real estate thing he can be found all over social media in places too numerous to mention and he listens to jazz, reads a little (mostly non-fiction), hangs out with the Rotary Club of College Park, MD and can be found blogging at MDSuburbanHomes.com