Our typical recommendation when buying a home is to allow ~30 days from contract acceptance to closing, but new regulations in the mortgage industry may lengthen the time needed to obtain a mortgage, according to some of our lenders. In today’s online world, 30 or more days sounds like a long time to complete a home purchase, but there are a number of processes that happen during that time, some of which are time-consuming. As a buyer, your inspection period and subsequent inspection negotiations usually take 7-16 days, so you must allow time for this to take place. However, inspections generally do not delay closings. It is the mortgage approval process that takes so much time, and two new government regulations are definitely slowing things down.
- Home Valuation Code of Conduct (HVCC) – This went into effect on May 1, 2009 and is intended to shield appraisers from the influence of lenders and loan officers. Essentially it prevents loan officers from selecting or having direct contact with appraisers. In addition, it requires that borrowers receive a copy of the appraisal three days in advance of closing. Both of these requirements have increased the time needed to receive an appraisal, which definitely slows down the loan approval process. There have been reports of appraisals taking more than two weeks to complete and lengthy appraisal times jeopardizing buyer’s ability to lock their interest rates.
- Mortgage Disclosure Improvement Act (MDIA) – This was passed as part of the Housing and Economic Recovery Act (HERA) and regulations went into effect on July 30, 2009. For mortgage applications, it changes the disclosures required for borrowers and the timing of their delivery. Specifically, if there are changes to your interest rate of more than 0.125%, the lender must issue a new Truth in Lending statement and allow a minimum of 3 business days before closing. In the past, a new disclosure could be provided at closing. If you are floating your rates, this could definitely delay the transaction at the end of the process.
While the intent of these new regulations is to protect consumers, it is clear that in their initial implementation, both of these are going to bog down the loan approval process. There are many issues that remain to be resolved here, as many loan officers are complaining about the quality of appraisers being used in this new process. Apparently some appraisers being selected have little or no experience with the properties and geographic areas that they are being asked to appraise, resulting in poor or faulty appraisals and lengthy review times.
While it remains to be seen how the Mortgage Disclosure Improvement Act will impact loan closing timelines, we are going to go with our lender’s recommendations for now. To be conservative, you need to allow at least 45 days to close your home purchase. 30 days is now a “bare minimum” in order to complete a transaction and represents a significant risk of delays and extensions at the end of the process. We are hopeful that the kinks in these regulations are worked out, since 45 days is simply too long in an already inefficient process.