Effective on mortgage applications taken October 3, 2015 and later, lenders are required to use two new disclosures created by the CFPB. The Loan Estimate, which replaces the 2010 Good Faith Estimate and the RegZ/Truth in Lending; and the Closing Disclosure, which replaces the HUD-1 Settlement Statement.
The new disclosures, the Loan Estimate and the Closing Disclosure, have “wait periods” that restrict how soon a real estate transaction with a mortgage can close. The Loan Estimate is issued once a lender has received an application (the six points of information that creates an application per the CFPB) within three business days. There is a seven day waiting period that takes place once the Loan Estimate has been delivered before the borrower can sign their final loan documents (also referred to as “consummation”).
If the lender needs to re-issue the Loan Estimate due to a bona fide “changed circumstance” (such as locking in a rate after the initial Loan Estimate was issued), the re-issued Loan Estimate triggers a 4 day wait period before consummation/signing can occur.
Borrowers must receive the Closing Disclosure at least three days prior to signing their final loan documents. If corrections are required to a Closing Disclosure that has been issued, an additional three day wait period may be triggered.
A Loan Estimate cannot be issued on the same day as the Closing Disclosure and a lender cannot issue a revised Loan Estimate after the Closing Disclosure has been provided to the borrower. However, a lender can issue the Closing Disclosure the day after the final Loan Estimate has been issued and those wait periods may run at the same time.
The wait periods are based on when the borrower receives the disclosures vs when the lender delivers the documents. In most cases, the lender needs proof that the documents have been received by the borrower. Different methods of delivery may have different wait periods. For example, if a lender meets with the borrower and receives signed documentation, the wait period may start that day. If the lender sends the documents electronically, the date the borrower acknowledges the documents will start the wait period. If the lender opts to send the documents via mail, it is assumed the borrower received the documents in seven days.
The three day wait period associated with the Closing Disclosure is NOT a right of rescission. If you’re buying a home, you still have contractual obligations to the purchase and sales agreement. However, if you are refinancing a home, you will enjoy the three day wait period after you receive your closing disclosure before you can sign your loan documents AND after you sign your loan documents, you will have a three day wait with the right of rescission before your loan can fund/close.
It’s more critical than ever for borrowers to make sure they communicate with their lender. Let your Loan Officer know if there are any changes to the contract (sometimes Real Estate Brokers forget to forward addendums to the contract) including changes to the closing date, seller credits or the sales price. Be sure to keep your Loan Officer informed of any vacations that you have planned during the mortgage process as the wait periods cannot be waived. It’s also important to quickly review, acknowledge and return the disclosures as, in most cases, the date you acknowledge the document will start the clock ticking for your wait period.
If you are considering buying or refinancing a home located anywhere in Washington state, I am happy to help you!
[…] The Closing Disclosure is a newer document that is replacing the HUD-1 Settlement Statement. Once the Closing Disclosure is received by the borrower, there is a three business day waiting perio…. It is CRITICAL that the borrowers sign and return the Closing Disclosure to the lender as soon as […]