Archive for August, 2009

Why Isn’t My Loan Closing On Time?

Posted by Shawna Ebersole | Categories: Buyers, Financing, Home Buying Process

Wondering why your loan isn’t closing on time? Well, it’s because legislation from last summer is now kicking in. The Mortgage Disclosure Improvement Act requires that all people who purchase a home and get a loan must receive a Good Faith Estimate and a Truth in Lending Disclosure seven working days before closing. If those figures change and impact the annual percentage rate more than .125% of 1%, then the figures need re-disclosed and the closing must be delayed 3 business days.

Most lenders have always been good about giving their customers this information at application and most lenders don’t change their fees significantly between application and closing so this should not be a problem. This law really will protect the consumer by forcing all lenders to disclose their fees accurately and in a timely manner so customers aren’t sitting at the closing table thinking…”This isn’t the loan I signed up for!”

So what documentation should a borrower receive when they apply for a loan? The two documents in question are a Good Faith Estimate and a Truth in Lending Disclosure. The Good Faith Estimate breaks down the payment for the loan, discloses the down payment required, type of loan, the closing costs that the lender expects to charge and the items to set up the borrower’s escrow accounts if the borrower will be putting real estate taxes and homeowner’s insurance in an escrow account.

The Truth in Lending tells a customer the annual percentage rate, how much they will pay in finance charges, whether the loan is fixed or variable and whether a loan has a pre-payment penalty, among other items. All the things you’d like to know in writing before you agree to the loan, huh?

One of the first numbers on a Truth in Lending Disclosure is the Annual Percentage Rate. APR is a required item to be disclosed when you make a major purchase like a car or a home. It blends the note rate with the cost of the financing.

The official definition reads: “APR is the cost of the loan in percentage terms taking into account various loan charges of which interest is only one such charge. Other charges which are used in calculation of the Annual Percentage Rate are Private Mortgage Insurance or FHA Mortgage Insurance Premium (when applicable) and prepaid finance charges (loan discount, origination fees, prepaid interest and other credit costs). The APR is calculated by spreading these charges over the life of the loan which results in a rate higher than the interest rate shown on your mortgage/deed of trust note. If interest was the only finance charge, then the interest rate and the annual percentage rate would be the same.”

Charges on the Good Faith Estimate which are for actual services, like a survey and an appraisal, don’t impact annual percentage rate. However, charges on the form that go to pay lender’s and title company’s overhead do impact the annual percentage rate.

The important way this protects the consumer is that the figures disclosed at loan application can’t vary much between application and closing without letting the customer know in advance. This law won’t hurt a consumer dealing with a reputable lender, but it will protect a consumer who has fallen in with a lender who planned to bait and switch.

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