Changes to the new Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) will take effect October 3, 2015. What does this mean to today’s home buyer?

During the housing market crisis, millions of home buyers took on complicated mortgages without understanding them. Many lost their homes in short sales or foreclosure as a result. The U.S. Consumer Financial Protection Bureau is imposing changes to address these problems. It is their desire to improve the home buyer’s understanding of the mortgage process in order to help prevent the loss of homes to short sales or foreclosure for home buyers. The changes imposed on the closing process will be significant.

Key highlights of the changes as of October 3, 2015:

2 New Forms

The Good Faith Estimate, Truth-In-Lending Document and HUD-1 Settlement Statement will be replaced as part of the changes established by the Consumer Financial Protection Bureau (CFPB) in accordance with the Dodd-Frank Act. Home buyers will see two new forms: loan estimate form and closing disclosure form.

The new loan estimate form:

• Shorter
• Summarizes the terms of a mortgage
• Estimates loan fees and closing costs
• Clearly states the loan terms and estimated closing costs
• Explains what the loan terms and estimated closing costs are
• More user-friendly

The closing disclosure form:

• Shorter
• More user-friendly
• Easier to read
• Provides a detailed account of the whole real estate transaction, from beginning to end, including loan terms, fees and closing costs

The new documents are designed to make comparing loan options and understanding changes that may occur between the time they applied for a loan and the settlement easier for home buyers.

This is a dramatic and significant change to the old way transactions have been handled. Again, the CFPB’s goal is to make closing easier for home buyers. Make It Easier for Consumers

New 3-Day Rule

Home buyers applying for a home loan after October 3, 2015, will be given three days to review paperwork and ask questions instead of rushing through closing without understanding what is going on in the closing process. This rule is a good one. It is the biggest change to mortgage closings and will have the greatest impact on home buyers.

The 3-day rule gives borrowers ample opportunity to thoroughly read the loan terms and closing documents and avoid surprises at the closing table. If they don’t understand something, they will have plenty of time to call their real estate agent, lender or title company and ask for an explanation.

• Lenders must provide a loan estimate to borrowers within three business days after they apply for a mortgage.
• Lenders must provide a closing document three business days prior to closing.

While an official loan estimate is only generated after a loan application for a specific property is made, lenders can generate a “fees worksheet” or similar document to help borrowers prepare for their cash needs at the closing during a preapproval process.

Requiring lenders to provide a loan estimate to borrowers within three business days after they apply for a mortgage redefines what goes into a loan application. A loan application requires the borrowers’ names, the borrowers’ income, the borrowers’ Social Security number, the property address, the estimated value of the property and the loan amount. Once the lender has that information, they have three business days to generate a loan estimate. Then the borrowers must sign an Intent To Proceed form to start the normal underwriting process.

Lenders cannot charge any fees except for a credit report and cannot require verification of any information from the borrowers before a loan estimate is generated and the Intent to Proceed form is signed.

Nothing else can be done and no other fees can be charged until the borrowers sign that Intent To Proceed form. The consumers can shop around during that 10-day period for other loans and use the loan estimate form as a comparison tool.

The new CFPB rule requirements will cause lenders and title companies to work in coordination with each other even though lenders are ultimately held responsible for meeting the standards of the regulation.

Until October 3, 2015, title companies prepared and delivered closing documents to borrowers. Now lenders are being held responsible for meeting the deadline. Lenders are typically taking on the preparation themselves.

These changes should be great for home buyers. They are going to make home buyers feel more confident about understanding their loan terms. However, while the responsibility of implementing these changes falls on lenders and title companies, consumers should be prepared for possible delays. Delays in settlements are to be expected until hiccups are worked out. Home buyers can take the following steps to avoid settlement delays:

• Be aware of the big changes that will take effect October 3, 2015
• Work with a lender and a title company who are well aware of and knowledgeable of the big changes
• Realize what a great opportunity these big changes are for today’s home buyer. They are providing plenty of time to read and understand loan terms and closing documents
• Review documents right away
• Compare documents to the loan estimate. Make sure they match. Catching errors soon will help avoid significant delays in the closing process
• Ask questions. Rely on the lender and real estate agent for help with understanding the documents

Here’s one more thing to consider regarding title insurance. Protecting the equity in a property is important. Title insurance protects the lender in case of a title dispute in the future. Homeowners are usually advised to purchase their own title insurance for protection of the investment they have in their home.

The new forms shared by the National Association of Insurance Commissioners and title companies use the term “optional” in reference to the purchase of owner’s title insurance. See this example. Purchasing title insurance has always been optional, but some fear putting “optional” right on the disclosure form may encourage consumers to disregard and pass over it.

Some believe stating “recommended but optional” on the new forms would better encourage consumers to purchase title insurance.

Purchasing a home is the largest transaction in a person’s lifetime, both emotionally and financially. It’s important that consumers educate themselves on the home-buying process. Visit the CFPB site and learn as much as possible about these big changes coming to the closing process on October 3, 2015.

Feel free to contact Charles D’Alessandro, your Brooklyn Real Estate Agent of Fillmore Real Estate in Brooklyn. Get answers to the questions you may have regarding these big changes coming to the closing process on October 3, 2015. Call (718) 253-9700 ext. 206 or email [email protected].

Sources:

http://www.inman.com/2015/08/20/7-trid-facts-that-every-real-estate-agent-should-know-right-now/

https://www.screaltors.org/2015/05/big-changes-coming-real-estate-settlement-procedures-act/

http://www.washingtonpost.com/realestate/closing-time-is-about-to-get-a-little-bit-easier-for-new-buyers/2015/05/13/eaa67038-f049-11e4-8abc-d6aa3bad79dd_story.html

It’s a sellers market in Brooklyn. What does that mean?

• there are more buyers than there are sellers
• finding a single-family home can be difficult for the home buyer
• great homes sell quickly, just days after listing
• bidding wars
• sellers are getting more than their asking price and receiving multiple bids, too
• home prices increase as time passes by

If you’ve been shopping for a new home in today’s sellers market in Brooklyn, you probably know just how difficult it can be to win a great home. Try these 7 things to win a great home in a sellers market in Brooklyn:

1. Look at things from the sellers’ perspective.

   To win a great home in a sellers market in Brooklyn, you must appeal to sellers. It helps to look at things from a sellers’ perspective.

• Sellers are spending a lot of money for two real estate agents and closing costs. If another potential buyer has already offered a bid on a great home, don’t offer a lower bid. You won’t appeal to the sellers with anything less than what has already been offered. Give the sellers a fair bid right away.

• If you’re missing out on great homes because they sell quickly, start looking at homes that have been on the sellers market in Brooklyn for a month or longer. Homes that have been overpriced won’t receive many bids if any. This frustrates sellers. They will be willing to take less than their home is worth and begin dropping the price. This is the time to put in a fair bid!

• Most sellers will choose the bid that will close the quickest, especially if their home is vacant. When a home is vacant, it’s costly to sellers. They are still paying a mortgage and spending money to move and rent or buy another home.

• Mortgage brokers can close the offer on a home in 2 or 3 weeks. Banks take 4 to 6 weeks. Let the sellers know that you can close faster than everyone else who is bidding on their home. After you place your bid, have your mortgage broker call the sellers and tell them you can close in 2 or 3 weeks.

• If the home is not vacant, your Brooklyn real estate agent should ask the sellers when they would like to move. Set the closing date for when the sellers would like to move. Sellers want to move conveniently on their schedule. If it will make the sellers’ move easier, offer to rent the home to them for a few weeks.

• Consider writing an escalation clause into the contract, but be careful. It can turn around and bite you! Some real estate agents will reject your bid and counter it with your highest stated bid. An escalation clause states that you will pay X number of dollars over the highest bid up to a maximum of X number of dollars if proof of the highest bid is shown.

2. Show sellers you are serious about your bid on their home.

   Sellers don’t want to deal with glitches or hang-ups when closing on their home. They dread having to pay out-of-pocket to fix a lot after inspections have taken place. Show the seller you are serious about your bid. Choose to opt out of the contingency that states the buyer can have an inspection done and back out of contract for any reason during the inspection period and get their earnest money (or deposit) returned. This shows the seller that you are serious about your bid, because you can lose your earnest money if you back out of the contract. If you do choose to opt out of this contingency, make sure you add this, or something similar, in the contract: “if cumulative repairs are over X number of dollars, the potential buyer may still back out if the seller doesn’t do the repairs.” Give the sellers peace of mind in exchange for a lower price.

3. Send an approval letter with your bid on a home in a sellers market in Brooklyn.

   A pre-approval or pre-qualification letter states that you can get a loan. An approval means you have already been approved for a loan. All you need is an address to on the loan.

   It’s best to work with a mortgage broker on the following since most banks won’t do this for you. Have your lender send an approval letter with your bid to the sellers. This approval letter should have already gone through the underwriting process. Don’t send a pre-approval letter or worse yet, a pre-qualified letter, with your bid to the sellers. This will not appeal to the sellers. Instead, put in a bid and have your mortgage broker call the sellers’ real estate agent. Your mortgage broker should tell the sellers’ real estate agent that you have already been approved and explain why that benefits the sellers.

4. Put more money down on the home.

   A larger deposit or escrow money shows you have more to lose if you back out of the contract. It shows the sellers you are a serious buyer. If you don’t back out of the contract, you’ll get back all that is in escrow.

5. Pay cash for everything.

   An all-cash bid in a sellers market in Brooklyn is very appealing to sellers. Most will go with an all-cash bid over even the highest bidder. All-cash buyers appear serious because they have more to lose. Cash buyers are able to close a deal in two weeks, which makes them even more appealing to sellers. A good mortgage broker and an approval letter let a seller know you can close in two weeks.

6. Make your desire to purchase a seller’s home personal.

   If you’re just numbers on paper, then you’ll have to be the biggest numbers on paper to win a great home. Write a letter to the sellers. Tell them how much you love their home. Tell them how their home will benefit you and your family to live there. Everyone enjoys feeling like they are helping someone. Sellers want to feel good about the next family moving into their home.

   Here’s an extra-special gesture to help you win a great home in a sellers market in Brooklyn. Have your real estate agent ask the sellers an open question about what they want. You’re looking for something important that will help the sellers and increase your chances of winning the bidding war on their home. What seller wouldn’t want to work with a buyer who cared enough to ask and make changes that would help them? One question could help you win a great home and make the sellers happy you asked.

7. Find homes before they hit the sellers market in Brooklyn.

   If you can find homes before they hit the market, you’ll save yourself time and money.

• Drive around neighborhoods in areas you are interested in living. Look for large remodels or construction on existing homes. They may be getting ready to list their home for sale. You may be able to save some money by buying that home early.

• Ask your real estate agent to send cards to owners who have lived in their homes for 7 to 10 years in an area you are interested in living. Ask if they are interested in selling. Your lender’s contact information should be listed on the cards. Owners who are interested in selling will be able to call your lender and verify that you are a real buyer.

• Ask your real estate agent to email other agents they work with to see if they have any homes coming up that you might be able to see before other buyers.

No, you don’t have to pay the highest price to win a great home in a sellers market in Brooklyn, although it helps. Just try these 7 things when shopping today’s sellers market in Brooklyn and win YOUR great home!

Time is money. Get the help of Charles D’Alessandro. He has over 25 years of experience and is active in the Brooklyn real estate market. He knows how to help you win a great home in a sellers market in Brooklyn. Contact Charles D’Alessandro of Fillmore Real Estate in Brooklyn at (718) 253-9700 ext. 206 or [email protected].

Sources:

http://www.biggerpockets.com/renewsblog/2015/03/11/buyers-guide-winning-deals-sellers-market/