What Is Adjustable-rate Mortgage (ARM)

Adjustable-rate mortgages (ARMs) have an interest rate that may change periodically depending on changes in a corresponding financial index that's associated with the loan. Generally speaking, your monthly payment will increase or decrease if the index rate goes up or down.

ARM loans are usually named by the length of time the interest rate remains fixed and how often the interest rate is subject to adjustment thereafter. For example, in a 5y/6m ARM, the 5y stands for an initial 5-year period during which the interest rate remains fixed while the 6m shows that the interest rate is subject to adjustment once every six months thereafter.

When might an adjustable-rate mortgage make sense?

• If you plan to move before the end of the introductory fixed-rate period, so you aren't concerned about possible rate increases
• If you want an initial monthly payment lower than a fixed-rate mortgage usually offers
• If you think interest rates may go down in the future

Source

DRE ID # 01769353

NMLS ID # 394275

Getting a Mortgage: 5 Ways to Improve Your Chances

Buying a home is a major financial investment, and, for many people, the largest purchase they will make. To buy a home, you’ll likely need a mortgage for funding that you can pay off over the long-term. However, not everyone will qualify for a mortgage.  Here are a few ways you can improve your chances on being approved right away;

1. Check Your Credit Report

Lenders review your credit report, which is a detailed report of your credit history, to determine whether you qualify for a loan and at what rate.

By law, you are entitled to one free credit report from each of the “big three” credit rating agencies (Equifax, Experian, and TransUnion) every year.

 You can use AnnualCreditReport.com to request your free copy, which you can get immediately in electronic format. Review your credit report for errors and to get an understanding of your credit history, such as if you have a history of late payments or high credit utilization.

2. Fix Any Mistakes

Read your credit report closely to see if there are any mistakes that could negatively affect your credit. Look for potential errors such as:

• Debts that have already been paid (or discharged)
• Information that is not yours due to a mistake (e.g., the creditor confused you with someone else because of similar names and/or addresses, or because of an incorrect Social Security number)
• Information that is not yours due to identity theft
• Information from a former spouse that shouldn’t be there any more
• Out-of-date information
• Incorrect notations for closed accounts (e.g., it shows the creditor closed the account when, in fact, you did)

Consider checking your credit report at least six months before you plan to shop for a mortgage so you have time to find and fix any mistakes.

3. Improve Your Credit Score

A credit score is a three-digit number that lenders use to evaluate your credit risk and determine how likely you are to make timely payments to repay a loan. The most common credit score is the FICO score, which is comprised of different credit data:

• Payment history – 35%
• Amounts owed – 30%
• Length of credit history – 15%
• Credit mix – 10%
• New credit – 10%

In general, the higher the credit score you have, the better the mortgage rate you can get. To improve your score, check your credit report and fix any mistakes, and then work on paying down debt.

Setting up payment reminders so you pay your bills on time, keeping your credit-card and revolving credit balances low, and reducing your debt. Avoid making a major purchase while you are applying for a mortgage.

4. Lower Your Debt-to-Income Ratio

A debt-to-income ratio compares the amount of debt you have to your overall income. It’s calculated by dividing your total recurring monthly debt by your gross monthly income, expressed as a percentage. Lenders look at your debt-to-income ratio to measure your ability to manage the payments you make each month, and to determine how much house you can afford.

Lenders like to see debt-to-income ratios that are 36% or lower, with no more than 28% of that debt going toward mortgage payments (this is called the “front-end ratio”). In most cases, 43% is the highest debt-to-income ratio you can have and still get a qualified mortgage. Above that, most lenders will deny the loan because your monthly expenses are too high compared with your income. 

To lower your debt-to-income ratio, and both are easier said than done:

• Reduce your monthly recurring debt.
• Increase your gross monthly income.

To reduce your monthly recurring debt, first cut back on purchases you make with credit. Look at where your money goes each month, figure out where you can save and make it happen. To increase your income, you can try to find a second job, work extra hours at your primary job, or request a pay increase.

5. Go Large with Your Down Payment

A large down payment can also help increase your chances of getting approved for a mortgage. The more money you put down, the more you reduce the loan-to-value ratio, which also increases your chances of getting the best mortgage interest rates.

The loan-to-value ratio is calculated by dividing the mortgage amount by the purchase price of the home (unless the home appraises for less than you plan to pay, in which case the appraised value is used).

Here’s an example. Say you plan to buy a house for $100,000. You put down $20,000 (20%) and seek a mortgage for $80,000. The loan-to-value ratio would be 80% ($80,000 mortgage divided by $100,000, which equals 0.8, or 80%). If you can put down $40,000 for the same house, the mortgage would now be just $60,000. The loan-to-value ratio would fall to 60% and it will be easier to qualify for the lower loan amount. 

When you're setting your down payment, remember that a 20% or larger down payment will also mean that you won't be subject to a mortgage insurance requirement, all of which can save you money. Source

DRE ID # 01769353

NMLS ID # 394275

5 Hidden Lifestyle Perks Of Buying vs. Renting

Buying a home offers many financial advantages, especially when you compare it to renting. But there are other pluses and pleasures of homeownership that sometimes go unnoticed. Whether you want the flexibility to transform your space or simply wish to live on your own terms, owning a home lets you embrace a lifestyle filled with unique opportunities that renting typically can’t provide. 

Here are 5 hidden lifestyle perks of buying vs. renting;

1.) Start a creative venture: If you dream of transforming your passion into your profession, owning a home may give you the privilege to pursue it from the comfort of your own space.

• Love to cook? You can run a food service company by certifying your kitchen to meet health and safety standards, turning it into a hub for culinary creativity.
• Are you a musician? By converting an attic or basement into a state-of-the-art music studio, you’ll have the perfect set-up for recording an album or practicing for gigs.
• Have a green thumb? Growing fresh flowers or produce in your garden can lead to a business, selling your harvest at farmers’ markets or to local retailers.

2.) Express your festive spirit: Imagine having the freedom to create a dazzling, over-the-top, celebratory home environment, year-round, without worrying about violating rental agreements. Whether you’re decking the halls for a winter wonderland or conjuring up a hauntingly boo-tiful Halloween display, you can unleash your creativity and take holiday decorating to another level when you own your home. If you’re a member of a Home Owners’ Associations (HOAs) make sure to follow the guidelines around exterior decor.

3.) Elevate the fun factor: When you compare buying vs renting a house, homeownership delivers more delights! Case in point: landlords usually don’t allow extensive backyard renovations. However, when you own a home, you have flexibility to create the outdoor retreat of your dreams. Just imagine:
Relaxing by your shimmering pool

• Practicing your golf swing on your backyard putting green
• Skating on your own ice rink
• Cooking your favorite meals in your outdoor kitchen

The possibilities are endless, and being able to share the fun with friends and family makes it even more special. From hosting cocktail parties to barbecues, your personal outdoor oasis provides the perfect backdrop for creating memories.

4.) Unleash your inner artisan: Whether you’re into printmaking, furniture restoration, metalwork, or any other specialized craft, owning a home gives you the freedom to outfit a dedicated space so you can build your skills and bring your creative visions to life. From setting up an art studio in your garage to converting a spare room into a fully equipped workshop, your home can support your hobbies better than a rental ever could.

5.) Welcome the perfect pets: If you dream of raising chickens for “farm-fresh” eggs, sharing your life with a pair of large-breed dogs, or even caring for more exotic pets—think miniature horse! — it’s unlikely to happen while living in a rental. But when you’re buying vs. renting a house, you can choose the feathered or furry friends that bring you joy as long as you comply with local ordinances. Source

DRE ID # 01769353

NMLS ID # 394275

Second Mortgage: What It Is And How It Works

What Is a Second Mortgage?

A second mortgage is a type of loan taken out on a property or home that currently has a mortgage loan. A first mortgage is a loan typically used to purchase a home, while a second mortgage is a loan taken out on the equity of the home. As you pay down your mortgage, equity or ownership builds over time. A second mortgage allows you to tap into the home equity and take out a second loan.

A second mortgage is subordinate to the first mortgage. If the borrower defaults on the payments, the original or first mortgage will receive all proceeds from the property’s liquidation until it is paid off. As a result, the interest rate charged for the second mortgage tends to be higher, and the amount borrowed is lower than that of the first mortgage.

How a Second Mortgage Works

When most people purchase a home or property, they take out a home loan from a lending institution that uses the property as collateral. This home loan is called a mortgage, or more specifically, a first mortgage. The borrower must repay the loan in monthly installments made up of a portion of the principal amount and interest payments. Over time, as the homeowner makes good on their monthly payments, the home also tends to appreciate in value.

The difference between the home’s current market value and any remaining mortgage payments is called home equity. A homeowner may decide to borrow against their home equity to fund other projects or expenditures. The loan they take out against their home equity is a second mortgage, as they already have an outstanding first mortgage. The second mortgage is a lump-sum payment made out to the borrower at the beginning of the loan.

Like first mortgages, second mortgages must be repaid over a specified term at a fixed or variable interest rate, depending on the loan agreement signed with the lender. The loan must be paid off first before the borrower can take on another mortgage against their home equity.

Requirements for a Second Mortgage

To qualify for a second mortgage, you will need to meet a few financial requirements. You typically will need a credit score of 620 or higher, a debt-to-income (DTI) ratio of 43% or lower, and a decent amount of equity in your first home. Because you are using the equity in your home for the second mortgage, you will need to have enough to not only take out your second loan but also to be able to keep approximately 20% of your home’s equity in the first mortgage.

Special Considerations

Borrowing Limits

It may be possible to borrow a hefty amount of money with a second mortgage. Second mortgage loans use your home (presumably a significant asset) as collateral, so the more equity you have in a home, the better. Most lenders will allow you to borrow at least up to 80% of your home’s value, and some lenders will let you borrow more.

Approval Time

Like all mortgages, there is a process for obtaining a HELOC or a home equity loan, and the timeline may vary. You will need to apply for an appraisal of your home, and it usually takes the lender’s underwriter a few weeks to review your application. It could be four weeks, or it could be longer, depending on your circumstances.

Second Mortgage Costs

Just like the purchase mortgage, there are costs associated with taking out a second mortgage. These costs include appraisal fees, costs to run a credit check, and origination fees.

Although most second-mortgage lenders state that they don’t charge closing costs, the borrower still must pay closing costs in some way—the cost is included in the total price of taking out a second loan on a home.

Since a lender in a second position takes on more risk than one in the first position, not all lenders offer a second mortgage. Those that do offer them take great steps to ensure that the borrower is good to make payments on the loan. When considering a borrower’s application for a home equity loan, the lender will check whether the property has significant equity in the first mortgage, a high credit score, a stable employment history, and a low debt-to-income ratio.

Source

DRE ID # 01769353

NMLS ID # 394275

What Is Inflation?

Inflation is a gradual loss of purchasing power that is reflected in a broad rise in prices for goods and services over time. The inflation rate is calculated as the average price increase of a basket of selected goods and services over one year. High inflation means that prices are increasing quickly, while low inflation means that prices are growing more slowly. Inflation can be contrasted with deflation, which occurs when prices decline and purchasing power increases.

Understanding Inflation

An increase in the money supply is the root of inflation, though this can play out through different mechanisms in the economy. A country’s money supply can be increased by the monetary authorities by:

• Printing and giving away more money to citizens
• Legally devaluing (reducing the value of) the legal tender currency
• Loaning new money into existence as reserve account credits through the banking system by purchasing government bonds from banks on the secondary market
• Other causes of inflation include supply bottlenecks and shortages of key goods, which can push prices to rise.

When inflation occurs, money loses its purchasing power. This can occur across any sector or throughout an entire economy. The expectation of inflation itself can further sustain the devaluation of money. Workers may demand higher wages and businesses may charge higher prices, in anticipation of sustained inflation. This, in turn, reinforces the factors that push prices up.

Types of Inflation

Inflation can be classified into three types: demand-pull inflation, cost-push inflation, and built-in inflation.

Demand-Pull Effect

Demand-pull inflation occurs when an increase in the supply of money and credit stimulates the overall demand for goods and services to increase more rapidly than the economy’s production capacity. This increases demand and leads to price rises.

When people have more money, it leads to positive consumer sentiment. This, in turn, leads to higher spending, which pulls prices higher. It creates a demand-supply gap with higher demand and less flexible supply, which results in higher prices.

Cost-Push Effect

Cost-push inflation is a result of the increase in prices working through the production process inputs. When additions to the supply of money and credit are channeled into a commodity or other asset markets, costs for all kinds of intermediate goods rise. This is especially evident when there’s a negative economic shock to the supply of key commodities.

These developments lead to higher costs for the finished product or service and work their way into rising consumer prices. For instance, when the money supply is expanded, it creates a speculative boom in oil prices. This means that the cost of energy can rise and contribute to rising consumer prices, which is reflected in various measures of inflation.

Built-In Inflation

Built-in inflation is related to adaptive expectations or the idea that people expect current inflation rates to continue in the future. As the price of goods and services rises, people may expect a continuous rise in the future at a similar rate. As such, workers may demand more costs or wages to maintain their standard of living. Their increased wages result in a higher cost of goods and services, and this wage-price spiral continues as one factor induces the other and vice versa.

How Inflation Impacts Prices

While it is easy to measure the price changes of individual products over time, human needs extend beyond just one or two products. Individuals need a big and diversified set of products as well as a host of services to live a comfortable life. They include commodities like food grains, metal, fuel, utilities like electricity and transportation, and services like healthcare, entertainment, and labor.

Inflation aims to measure the overall impact of price changes for a diversified set of products and services. It allows for a single value representation of the increase in the price level of goods and services in an economy over a specified time.

Prices rise, which means that one unit of money buys fewer goods and services. This loss of purchasing power impacts the cost of living for the common public which ultimately leads to a deceleration in economic growth. The consensus view among economists is that sustained inflation occurs when a nation’s money supply growth outpaces economic growth.

To combat this, the monetary authority (in most cases, the central bank) takes the necessary steps to manage the money supply and credit to keep inflation within permissible limits and keep the economy running smoothly.

Theoretically, monetarism is a popular theory that explains the relationship between inflation and the money supply of an economy. For example, following the Spanish conquest of the Aztec and Inca empires, massive amounts of gold and silver flowed into the Spanish and other European economies. Since the money supply rapidly increased, the value of money fell, contributing to rapidly rising prices.

Inflation is measured in a variety of ways depending on the types of goods and services. It is the opposite of deflation, which indicates a general decline in prices when the inflation rate falls below 0%. Keep in mind that deflation shouldn’t be confused with disinflation, which is a related term referring to a slowing down in the (positive) rate of inflation.

Source

DRE ID # 01769353

NMLS ID # 394275

 

When to Refinance Your Mortgage

Refinancing a mortgage means paying off an existing loan and replacing it with a new one. There are many reasons why homeowners refinance:

• To obtain a lower interest rate and smaller monthly payments
• To shorten the term of their mortgage
• To convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa
• To tap into home equity to raise money for a large purchase, to consolidate debt, or to deal with a financial emergency,

Since refinancing can cost between 5% and 7% of a loan's principal and—as with an original mortgage—requires an appraisal, a title search, and application fees, it's important to know when it's worthwhile and when it's better to wait.

When Should You Refinance?

Refinancing your mortgage is a big step. As such, there are several things you should consider before you sign the paperwork. Most borrowers consider mortgage rates they want to refinance. Locking in a lower rate is an important factor to consider when you want to refinance because it effectively lowers your payments. But it shouldn't be the only thing to focus on when you want to renew your mortgage.

Here are a few other factors to consider before you apply:

• Your home equity. Make sure you have equity available in your home. This is key if the value of your home drops below the value when you purchased it. It's also important to note that many lenders (especially conventional lenders) won't refinance your mortgage if you don't have enough equity in your home.

• Your credit history. You won't qualify for a refinance if your credit score doesn't meet the minimum requirements. Take the time to build up your credit score before you apply.

• Refinancing costs. If you have a mortgage, you'll know how much you paid in additional costs. As such, you'll have to pay these expenses again—usually a small percentage of the loan. Try to find ways to negotiate so you can reduce the costs.

Other points you'll want to note are your debt-to-income (DTI) ratio, the overall term of the refinance, and whether you qualify for refinance points to reduce the interest rate on the loan.

DRE ID # 01769353

NMLS ID # 394275

Source

What Is a Deed of Trust and How Does It Work?

What is a deed of trust?

When closing on a loan to buy a property, you’ll sign a lot of paperwork with your loan agreement. In some states, you’ll also sign a deed of trust.

This document connects the property to the loan and gives the lender the right to take the property (or foreclose) if you don’t repay the loan.

A deed of trust also includes pertinent details about the loan, such as the borrowing amount, the interest rate, the repayment schedule, and the length of the loan.

A deed of trust isn’t used in every state—some states use mortgages—but it’s typically used in places like California and Texas. In which case, a third-party trustee will step in to handle matters if a borrower fails to repay the loan.

How does a deed of trust work?

A deed of trust involves three main parties: the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee). Here’s what each party does:

•The borrower (Trustor): This is the person who takes out the loan and promises to repay it under the agreed terms.

•The lender (Beneficiary): The lender provides the funds for the loan and hold a financial interest in the property until the borrower repays the loan.

•The trustee: The trustee is a neutral third party who holds legal title to the property until the loan is paid off. If the borrower defaults on the loan, they have the right to begin the foreclosure process.

Deed of trust vs mortgage

A deed of trust and a mortgage both serve the same purpose, which is to secure a loan for a property. Even so, they differ in how they function.

The main difference between the two lies in the number of parties involved and the process of foreclosure. Whereas a deed of trust involves three parties: the borrower, the lender, and a third-party trustee, a mortgage involves only the borrower and the lender. The borrower holds the legal title, but the lender has a lien on the property.

Another difference involves the handling of foreclosures, which can happen when a borrower defaults and the lender sells the property to recover the money owed.

With a deed of trust, the trustee can start a foreclosure without involving the court system. This is known as a non-judicial foreclosure.

On the other hand, when a mortgage secures the loan, it’s known as a judicial foreclosure and the lender must go through the court to start proceedings. Since this process involves the court system, it tends to be slower.

Foreclosures with a deed of trust can take three to six months on average, whereas foreclosures with a mortgage might take six months too over a year. Therefore, if you’re in a state that uses a deed of trust, you could be removed from your home sooner.

Keep in mind that whether you have a deed of trust or a mortgage depends on where you live. For example, states like California, Virginia, Georgia, North Carolina, and Texas typically use a deed of trust. Meanwhile, states like New York, Michigan, Illinois, Ohio, and Florida use a mortgage.

A deed of trust is an important document that helps secure your home loan and protects both you and the lender. Understanding how it works can help you feel more confident during the home buying process, as it outlines the responsibilities of both parties. Source

DRE ID # 01769353

NMLS ID # 394275

Five Ways To Test A Neighborhood Before Buying a Home

Moving to a new neighborhood can be exciting. You will have the chance to explore local attractions and meet new people. If it is closer to your job, you have the extra benefit of a shorter commute, but keep in mind you will want to test a neighborhood before buying your next home. 

If you are still unsure if you want to live in a new neighborhood, consider trying these five tips:

1.) Rent First Before Buying A Home​

If the finances work out in your favor, consider renting in the neighborhood before buying a home. Renting before committing to investing in a home in the neighborhood will allow you to really learn about the neighborhood. This will give you six months to a year to decide if the area is right for you. If you love the area, start the house-hunting process a few months before your lease is up. 

2.) Walk The Neighborhood Before Buying A Home​

Walk around the neighborhood and take a look at houses and restaurants. You get a better feel for the area by walking as opposed to simply driving through it. Visit the area during different hours of the day to see how daily life changes. Walking the neighborhood later in the day will give you a better sense of the area that may not be present in the mid-day. Communities throughout the same city can have vastly different atmospheres and feelings. Also, pay attention to how the homes in your neighborhood have aged. In some neighborhoods, homes that are only a few years old can show dramatic signs of wear (i.e., warped fascia boards, chipping paint, shutters falling off the windows, dry rot, etc.). Be sure the home you choose is well-built to last!

3.) Talk To Friends In The Neighborhood​

Talk to friends or colleagues that live in the neighborhood to see how they feel about the area. For example, you can ask them about rush hour traffic or which schools are the best. If you enjoy dining out, ask your friends about the restaurants that have the best happy hour specials or live entertainment.

4.) Explore The Neighborhood Dining Options

Chances are you will eat at the places closest to your home instead of traveling far for a meal. Try out some of the local restaurants in the neighborhood. Are these restaurants the types of places you can imagine yourself visiting for date night or to watch the big game?

5.) Take a Neighborhood Staycation

Pretend you are living in the neighborhood by renting a hotel room or Airbnb for a long weekend. This will help you explore the area more in-depth. You’ll be able to commute to and from work as well as get groceries from the nearby supermarket. If you like to jog, you can even find local parks for exercise.

You should love the neighborhood where you buy a home. If you are exploring different neighborhoods to move to, try taking a staycation there, or visit the local eateries. You may just find the perfect place for your next move. Source

DRE ID # 01769353

NMLS ID # 394275

Advice for Buying or Selling a Home in 2025

Mortgage rates are expected to stay elevated for the foreseeable future, which has implications for prospective homebuyers and sellers. But regardless of current mortgage rate trends, Americans will still have reasons to move, whether they want to downsize in retirement or need to relocate for a better job.

Here's what you should consider if you're planning on buying or selling a home in 2025;

What Buyers Should Know: Waiting for Lower Rates Comes at a Price

Good things may come to those who wait, but patience doesn't always pay off in the housing market. Two-thirds of homebuyers are waiting for mortgage rates to fall this year before buying a home, according to a March U.S. News survey. The vast majority of them (85%) wanted to see rates below 6% before entering the market, which hasn't happened – and it isn't expected to happen in the near future.

In the time that homebuyers have been holding out for lower rates, home values have continued to rise. Home prices have appreciated by 15% since the beginning of 2022, according to the S&P CoreLogic Case-Shiller Home Price Index – despite mortgage rates doubling in that time frame.

Real estate markets are expected to stabilize this year, but buyers shouldn't expect housing prices to come crashing down, at least not on a national level. Here are a few home price forecasts from top U.S. housing groups:

• Fannie Mae: Home prices will rise 3.6% in 2025 and 1.7% in 2026.
• MBA: Home prices will rise 1.3% in 2025 and 2026, followed by a 2% rise in 2027.
• NAR: Existing home prices will increase to $410,700 in 2025 and $420,000 in 2026.
• Realtor.com: Existing home sales prices will increase by 3.7% in 2025.
• Zillow: Home values will grow 2.6% in 2025.

Although home values aren't likely to drop significantly, it's still positive that they probably won't keep rising at the double-digit pace seen in 2021 and 2022. Without over-the-top bidding wars to drive home prices through the roof, buyers can expect more properties to choose from.

That's not to say it will be a buyer's market, but there should at least be more balance between buyers and sellers. Buyers may be able to close the deal without waiving important protections like home inspections and appraisal contingencies. What's more, existing home inventory is forecast to improve (at least marginally) as rates drift lower and some previously rate-locked homeowners decide to sell.

Finally, buyers may find less competition in the new home construction market. Homeowners may be reluctant to sell and sacrifice their low mortgage rates, but homebuilders remain eager to close the deal, especially as new home inventory rises. Although new-construction homes are typically more expensive than resale homes, builders may be willing to offer other concessions like price reductions or temporary interest-rate buydowns.

What Sellers Should Know: Remember That You're a Buyer, Too

Perhaps the biggest hurdle facing sellers is that they still need a place to live once they've sold their current home. For many, that means overcoming the lock-in gap to buy a new home at today's rates and home prices.

According to Federal Housing Finance Agency data, the average interest rate on existing mortgages is 4.2% – far lower than the current prevailing rate available to new homebuyers. In fact, 84% of homeowners have a rate below 6%, and rates aren't expected to dip below that threshold anytime within the next few years.

Although many prospective sellers would be hard-pressed to give up their sub-3% mortgage rate, experts predict that that the rate lock-in effect will eventually wear off somewhat as homeowners grow tired of waiting to move.

Plus, a 2023 Fannie Mae survey suggests that low rates aren't the only factor keeping people from selling. While a fifth of mortgage borrowers (21%) say that their low mortgage rate is causing them to stay in their home longer, nearly as many said they simply like their current home (19%). Perhaps unsurprisingly, 13% say they're staying put because home prices are too high.

However, there is a silver lining for sellers who are also buyers: Many homeowners are sitting on a mountain of equity thanks to double-digit home price appreciation since 2020. Successful sellers can tap into that equity to put toward their next home purchase. 

Learn more on this topic from the article here...

DRE ID # 01769353

NMLS ID # 394275

What Is The Closing Disclosure 3-Day Rule

Your lender is required by law to give you the standardized Closing Disclosure at least 3 business days before closing. This is what is known as the Closing Disclosure 3-day rule. This requirement is thanks to the TILA-RESPA Integrated Disclosures guidelines, which went into effect on October 3, 2015.

Prior to these rules, home buyers received two documents: the HUD-1 Settlement Statement and the Truth in Lending Disclosure Statement (instead of the Closing Disclosure). There were two problems with these previous documents: they were confusing, and they were only provided at closing – which offered home buyers very little opportunity to review and make sense of them.

The Closing Disclosure’s 3-day rule now gives you plenty of time to go over the final terms of your loan before you sign your closing documents.

How Does The 3-Day Rule Affect The Closing Disclosure Timeline?

Because of the 3-day rule, the sequence of events leading up to you receiving a Closing Disclosure should be relatively predictable. Lenders are generally careful to avoid issuing a Closing Disclosure before they are certain about what the closing costs and fees will be; they don’t want to have to change the agreement and wait another 3 business days. Source

This means that loan approval, home appraisal, insurance and the calculation of all third-party fees will be completed before the Closing Disclosure is issued to you. The timeline will therefore look like this:

• All costs are calculated.
• The Closing Disclosure form is issued.
• The 3-day rule goes into effect.
• You sign the form.

DRE ID # 01769353

NMLS ID # 394275