(TRID – Truth-in-Lending Act and Real Estate Settlement Procedures Act Integrated Disclosures)
Well, D-Day has finally arrived. The day that many in the real estate and mortgage industry have been anxious about has now come and the way that mortgage loans and the real estate deals they go with are done is going to be different. The only people who will see a (temporary) advantage at first will be cash buyers.
It sounded like a good idea – make it so that buyers get more information about the costs of purchasing a home so that they can shop around to get the best prices. That isn’t a bad thing, however, like most of what comes out of our country’s capital from people who work from the theoretical rather than actual experience, the new changes will cause the financing for real estate to take longer and be more complicated and will likely result in a reduction in the number of real estate agents and mortgage brokers (but it will be mostly those who dabbled in their field rather than working in it full time as a professional.
Reality vs. What is Being Said
Most of the articles online that I had been reading and even some I received as a real estate agent made the changes sound like they really weren’t that big of a deal and wouldn’t be that bad. There were would be some confusion at the beginning while everyone got used to the new system but it would only create problems in rare circumstances. So why were mortgage brokers, lenders, title companies, etc. privately freaking out? It didn’t make any sense.
Even the mortgage broker I refer my clients to who has done more loans and had more experience than any 10 mortgage brokers combined I have worked with before was telling me a couple of months ago that she still felt she could close loans within 30 days, not the 45-60 days that others were saying. (She’s been able to close loans in as short as 10-15 days so she knows how to move things along while still making sure that her client’s interest is put first.)
Then over the last month as more was revealed to her about the specifics of the changes and how they will affect loans, she could see that these changes were much more significant than what had previously been said and that it is going to disrupt the normal flow of residential real estate sales at least at first.
A closing period of 45-60 days from the date of contract for a financed purchase will be the norm not the exception for a while to come, especially when less experienced real estate agents and mortgage brokers or loan officers are involved. When a buyer does not use a good agent or loan officer/mortgage broker, the potential for the closing date being delayed at the last minute is much higher than it has been and the possibility of a loan being declined and not being able to be resubmitted to any lender could be very real in some cases, even when the buyer is fully qualified and the property appraises for.
If you are a buyer who will plans to move here and finance your purchase and will expect to have the closing date be the actual date that your purchase closes on; if you are a seller and plan to sell your home and then want to use the money from that sale to close on a home or condo the same day; if you are a seller who thinks that if a buyer has a preapproval letter that you’re in the clear – keep reading.
What You Need to Know as a Buyer or Seller
I won’t go into all the details with you and we won’t really know whether it will be as bad as most suspect until we are well into October, but I did want to let you know what you will need to prepare for as a buyer or seller based on some info that I have been able to get from an inside line recently.
If you are a buyer getting financing, you will need to be prepared for a minimum 45 day closing period for now. And to even get that to happen you will have to get your loan officer or mortgage broker the documentation that they request very quickly. Choosing the mortgage broker or loan officer will be an even more important step now than it ever has been because if you don’t use the right person you may not be happy with what can happen.
Additionally, the real estate agent you choose to represent you as a buyer is very important because if you have an agent who is not experienced, does not have exceptional problem-solving skills or is not a diligent and hard-worker who knows what needs to be done – you may not end up closing on the home or condo you want to purchase.
If you are a seller, you will also need to be prepared for a longer closing period and for preapproved buyers to potentially run into issues with their financing, having the closing date changed to later (sometimes at the last minute) or having their loan declined. Whoever you work with on listing your home will need to know how to really qualify not only buyers but the mortgage broker/loan officer and lender doing their loan in this new era of real estate. You will also have to work out contingencies at the beginning for what you will do if any of these problems arise with a contracted buyer. It may not be said out loud but sellers and their agents will at least be thinking the title of this article: “Don’t TRID on Me.”
I’m not saying that buyers cannot get financing or get their loans to close, or that sellers will not be able to sell to buyers who are getting financing. But at least until the end of the year you and your agent need to be even more prepared, skilled and adept to be sure to have success in buying or selling.
Cash Buyers’ Advantage
During the next 3 months, cash buyers will have an advantage since sellers and their agents (at least those who know about the changes which have occurred) will definitely give them deference. In some cases this will mean that you can buy properties during this time period for less than you would have otherwise (just had that happen for one of my buyers). Once we get through the first 3 months following the changes, if things have gotten to a point where they aren’t as disruptive or chaotic, the cash buyer advantage will not be as strong. This could last longer than 3 months but at this point in time I would say that I’m quite certain about the 3 month period so that would be the time to take advantage of this situation.
I hope that what we experience is not as bad as we think it will be and I don’t like to sound like a doomsday person – but I also would rather have you be aware of and prepared for the bad things that could happen then be surprised by then and adversely affected by them.
If you have any questions on how this might affect a sale or purchase you are considering and how to best get through it, please call or email me.