October 19, 2009

Recent changes that effect home buyers and sellers

If you are thinking of buying or selling a home, there are some regulatory changes at the state and federal level that you need to know about. Let’s start with the easy stuff.

Carbon Monoxide Detectors: Due to some tragic incidents of carbon monoxide poisoning in the last year, the Colorado legislature established a new law requiring CO detectors be installed in any home that is rented or sold in Colorado. They must be hardwired or plug-in and have a battery back up in case the power goes out. They also need to be located within 15 feet of any bedroom door. I have purchased the plug-in variety at McGuckins for $30. It has always been a good idea for every home to have these, but now it is the law too.

$8000 Tax Credit Deadline is Looming: The credit for first time home buyers or those who have not owned a home in 3 years applies to homes purchased by December 1, 2009. Efforts are underway to get that deadline extended, but for now the clock is starting to run out. More details about that IRS rule can be found on my earlier post.

Appraisals: The spotlight on the housing bust caused the Federal Government to make new rules guiding the appraisal process in an effort to protect consumers.  Before, stories of sweetheart deals between lenders and appraisers that encouraged inflated valuations were rampant. The new requirements called HVCC (Housing Valuation Code of Conduct) while well intentioned are having some troubling consequences. Lenders used to contact local appraisers directly to order an appraisal for any home purchase or refinance. To keep these two parties at an arm’s length, lenders now have to contact a 3rd party company to schedule the appraisal. Lenders cannot select the appraiser or talk to them. Seems reasonable enough, except that these 3rd party companies put the order out into their network and the first appaiser that contacts them, gets the assignment. That appraiser, while required to be licensed in Colorado, may be from Denver or Fort Collins and may not be familiar with the Boulder market. That lack of expertise in a particular market can cause them to undervalue or overvalue properties. When you are buying or selling a home and the appraisal comes in too low, that can be a deal breaker. If it comes in too high, a buyer might think they got a great deal when they actually paid market value or more. In either case, the protection for the consumer is still lacking, but for a different reason.

The Loan May Take Longer to Get:Both buyers and sellers need to be aware of the new potential delays in the lending process. New Federal legistlation, HERA (Housing and Economic Recovery Act) and HOEPA (Home Ownership and Equity Protection Act). created changes to the Truth in Lending Act to provide a more transparent loan process and prevent deceptive lending practices. In the past, borrowers were not always clear on the details of their loan, like how high their adjustable interest rate could rise or that their loan included a pre-payment penalty. Under these new rules a lender must provide a written Truth in Lending Disclosure (TIL) to the home buyer and if there is a change after the initial disclosure, say locking in an interest rate that is different or a change in the loan amount, the down payment or the type of loan, then a new TIL disclosure must be received by the buyer at least 3 business days before closing (and email doesn’t count). The rules also require that a buyer receive a copy of their appraisal no less than 3 days prior to the closing (and again, email doesn’t count).Because of these timeline requirements, some closings may be delayed. 30 days used to be plenty of time to get a loan closed, but now 45 days is more typical. Buyers and Sellers just need to be aware that if a change is made to the loan near the closing date, a delay is possible. It is best to lock-in the interest rate and loan program early in the sale process and also to schedule the appraisal in time earlier as well.

The Loan May be Harder to Get: Some loan products are just not available anymore as lenders are now much more risk averse than in the past. But even some seemingly less risky loans are harder to come by these days as well. For example: If you need to borrow more than $417,000 in Boulder County, that is considered a Jumbo Loan. The interest rate is usually higher than a conforming loan (under $417k) and you’ll likely need to put down 20%. Finding a Jumbo loan allowing 10% or even 15% as a down payment, which used to be fairly common, is now much more difficult and costly.

Planning some extra time into the contract process and getting all of your documentation into your lender promptly should give you the best odds for a successful closing and a happy move into your new home.

Posted by elephant’s Realtor – Liz Benson

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