As if the closing process was not difficult enough already, a new set of Truth in Lending  (TIL) and appraisal regulations went into effect on July 30 and the end result will be slower closings. In the past, a lender could rush a mortgage application and close in as little as two weeks. Now, I predict that it will be difficult, if not impossible, to close in less than 30 days.

The new regulations slow things down by requiring the following:

1. Prohibits lenders from accepting payment for the loan application until a new good faith estimate of fees, now called an “early disclosure,”  is given to the buyer.

2. There is now a 7 day waiting period after the early disclosure is given that must expire before closing can occur.

3. A final TIL is then mailed 3 days before closing. If this baby increases by more then .125% from the early disclosure, then the lender has to start over and give you a new 7 day waiting period to think it over. That will be fun when the buyer has his moving van packed!

4. The appraisal must also be sent to the client 3 days before closing.

Lenders are terrified of the TIL laws in general and, believe me, they will follow these regulations to a T. Lenders are afraid of TIL lawsuits because if they lose the case, they pay heavy duty damages, attorney’s fees and costs.

I am already getting calls from lenders on the day that they take an application asking for the buyer’s title charges. This is easy to estimate, but it will further slow down the process while lenders wait for seller’s attorney to call them back with the fees. I put together a simple google spreadsheet that estimates buyer’s title fees.

Ken Harney has a good summary of the new regulations. And here is an interesting, if slightly technical, presentation from Wells Fargo on how it all works.

This year, most closings are first-time buyers. They are eager to get the $8000.00 tax credit for first-timers. This is a pretty simple process.

To get the $8000.00 tax credit you can either amend your 2008 tax return or wait to file your 2009 tax return. Since most first-buyers were picked clean of available cash at closing,  they amend their 2008 tax return to get the refund right away.

To amend your 2008 tax return, you will need:

1. A copy of your 2008 tax return;
2. Form 1040x, which is the amendment form;
3. Form 5405, the form that indicates that you are a first-time buyer who has joined the land-owning gentry.

If you type “1040x” or “form 5405” into google the forms pop right up. In the attached, I show how to fill out the form. This assumes that the client is single and the adjusted gross income is under $75,000.00.

The refund takes about 6 to 8 weeks to process.

Illinois will offer $6,000.00 interest free loans that can be used as a downpayment by first time buyers.

Details of the program are here.

The $8000.00 tax credit given to first time buyers has been popular and has helped get first time buyers rolling. I did a closing the other day where my client/buyer had already filled out his 1040x (to amend his 2008 tax return) and had it ready to mail in from the closing. That’s thinking ahead. But, the $8000.00 tax credit comes 4-6 weeks after closing and can’t be used for the downpayment. The new Illinois loan program will provide downpayment advances for FHA loans (FHA requires 3.5% down).

Anything that props up the housing market for awhile is good by me.

This just in.

The first time buyer tax credit of up to $8,000 is officially “monetized.”

Lenders making FHA mortgages to first time buyers are now allowed to make a bridge loans of up to $8,000 to apply as extra downpayment, toward closing costs or to lower the interest rate on the loan.

This should help get the first-time buyers rolling.