The Real Estate Settlement Procedures Act / RESPA recently made changes to protect the home buyer. The new procedure is to help buyers comparison shop for financing and to make better decisions for home loans.
Any change in the loan amount or terms means that the buyer must receive a new Loan Estimate within 3 days of the change or initial application.
When you apply for a conventional loan, you will receive a Loan Estimate within 3 days of application. As the process moves on, if the lender determines that a different finance type would be better, you’ll receive a new Loan Estimate. If there is a change early on, this will have no impact on closing, however, if there is a change in costs (over the allowed maximum), or terms of the loan, a new Loan Estimate is required. Depending on when the change occurs, closing could be delayed.
The initial Loan Estimate has information to help you comparison shop, providing key loan terms and an estimate of costs, including:
Sales price & term of loan
Loan type and loan number
Rate lock expiration date and time
Monthly principal and interest
Prepayment penalty or balloon payment details
Projected payments (including principal, interest, escrow, taxes, insurance and assessments)
Estimated closing costs (including loan costs, other costs, lender credits)
Loan costs – original charges (points, application fee, underwriting fee), services you cannot shop for (appraisal, credit report, floor determination, tax research fee) and services you can shop for (pest inspection, survey, title fees, including attorney fees, title insurance)
Other costs – taxes and other government fees, prepaids (homeowners insurance, mortgage insurance premium, interest and taxes)
Initial escrow payment (homeowners insurance, mortgage insurance, property taxes) and Other (title policy)
Estimated cash needed to close
At closing, the Closing Disclosure repeats the above information, showing the estimate and actual amounts, and must match the Loan Estimate. If it is off (a certain percentage is allowed), a new Loan Estimate must be provided prior to closing. This could delay closing.
These changes require new software for lenders and closing attorneys. The settlement statement (previously HUD-1) will go from 3 pages to 7 pages. See sample Closing Disclosure here:
The intent of this change is to make the process easier for buyers.