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Signing on the dotted line

by Meghann Finn Sepulveda on Aug 7, 2015

There is a significant amount of paperwork to review and sign when buying a new home — everything from the loan application and good faith estimate to the purchase contract and the escrow closing. Plus, new changes are going into effect soon that may make each real estate transaction a little longer to process.

But before you grab your pen and start signing away, do your homework and review each document thoroughly to avoid any mistakes and to verify the terms of the agreement are accurate before your purchase is complete. 

Loan process

During the mortgage loan application process, homebuyers should be prepared to provide the necessary documents required by the lender including personal information to pull a credit report as well as documentation about income and assets.

“The amount of paperwork required to obtain a home loan has evolved over the last three to five years due to changes within the industry based on federal regulatory disclosure requirements,” said Nick Monardo, vice president of wholesale lending at CNN Mortgage.

New rules 

A Good Faith Estimate (GFE) is a detailed document that lists basic information about the terms of a mortgage loan, according to the Consumer Financial Protection Bureau. Currently, a lender or mortgage broker must provide buyers with a GFE within three business days of receiving the loan application or other required information.

“The GFE is a comprehensive document that details the overall terms of the loan including the amount and rate,” Monardo said. “It also summarizes the settlement charges and fees from both the lender and any third-party such as the title agency or appraiser.” 

New rules related to the GFE, expected to become effective Oct. 3, will change the residential loan closing process.

“The GFE will be replaced by the Loan Estimate and the HUD-1 Settlement Statement will be replaced by the Closing Disclosure,” said Fletcher Wilcox, real estate analyst at Grand Canyon Title Agency. “These changes will affect closing timelines following implementation of a new three-day waiting period.” This means that before a borrower can sign loan documents, the Closing Disclosure must be in his or her possession for three business days. “This new waiting period will potentially extend the closing process,” Wilcox said.

Although these changes might add time to the closing process, the changes are intended to be beneficial to buyers, giving them more time to review the cost and terms of the loan document and improving real estate agent and lender communication. 

“The lender’s terms and the closing statements given to buyers will be uniform and much easier for the consumer to follow and compare,” said Dustin Gaskey, vice president at Fidelity National Title Agency.

Closing Disclosure

It is especially important to confirm that the Closing Disclosure matches the Loan Estimate. Buyers should also report positive or negative variances — including any changes in circumstances — which could ultimately affect the terms of the loan. 

“During the beginning stages of the loan application process, it’s necessary that the lender is thoroughly aware of the [applicant’s] entire credit history, including any significant derogatory events such as foreclosure, which could require the lender to select an alternative loan program,” Monardo said. “As lenders, we can only review the information that is put in front of us.”

Buyers are urged to refrain from making large credit purchases before the closing transaction is complete because it could have a negative effect on loan costs and qualification.  

Terms of the loan

Finally, read through the complete terms of the loan to determine if there are any discrepancies including prepayment penalties. In addition, homebuyers should not rely on their real estate agent and/or loan officer to explain every detail in each document.

“Review everything on your own very carefully and ask the escrow officer, as a third-party intermediary, to clarify any questions you may have,” Gaskey said.

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