The Federal Reserve Board under the Truth and Lending Act has come up with new disclosure time limit for The Regulation Z, (the lender disclosures all of the cost of the loan including how much interest will be charged on a loan). Now, fees for a real estate  loan cannot be collected by the lender until 4 business days after the initial disclosures are issued to a borrower.

Borrowers are given a Regulation Z upon the receipt of the loan application by the lender and the borrower has a three day right of recession upon receipt of the disclosure.  Then the borrower receives another Regulation Z just prior to the close of escrow.  Now, if the Annual Percentage Rate (APR) changes by more than 0.125% of the first Regulation Z given to the borrow initially, a new Truth and Lending disclosure will have to be generated and the closing will have to wait 7 business days.  In addition, the appraisal cannot be ordered until the 4th business day after disclosures are mailed to the buyer. These changes may cause the loan approval and funding to be delayed. This means there will be no “quick close” or even a normal 30 day close of escrow anymore.

With this new regulation, our company is requesting that the purchase agreement be written up with at least a 45 day close of escrow. Both the buyer and seller should know this be aware of these changes.

In today’s market it is also important to know that when applying for a conforming loan $697,500 or a jumbo loan (loans larger than the conforming), the lenders today determine whether the loan will be approved based on three factor:

1. The Income to debt ratio

2. The amount of verified down payment the buyer has or the Loan to Value (LTV)

3. The credit scores typically reported by the credit companies like Experian, TransUnion or Experian.

All lenders use a “guideline” when reviewing a loan package but they vary from each institution. There are also government requirements that the lenders have to follow.  Some lenders will consider a loan if the income is not quite high enough, if the down payment is larger, making the LTV lower and if the credit scores are high.  Both buyers and sellers should keep up on the latest mortgage changes so there are no surprises.