Extra three-day reviews are unlikely

Under the Know Before You Owe rule, lenders must give your clients new, easier-to-use disclosures about their loan three business days before closing. This gives your clients time to review the terms of the deal before they get to the closing table.

Many things can change in the days leading up to closing. Most changes will not require the lender to give three more business days to review the new terms before closing. The new rule allows for ordinary changes that do not alter the basic terms of the deal.

Only three changes require a new three-day review

  1. The APR (annual percentage rate) increases by more than 1/8 of a percent for regular loans (most fixed-rate loans) or 1/4 of a percent for irregular loans (most adjustable loans). A decrease in APR will not require a new three-day review if it is based on changes to the interest rate or other fees. Lenders have been required to provide a three-day review for these changes in APR since 2009.
  2. A prepayment penalty is added, making it expensive to refinance or sell.
  3. The basic loan product changes, such as a switch from fixed rate to adjustable interest rate or to a loan with interest-only payments.

No other changes require a new three-day review

There has been much misinformation and mistaken commentary around this point. Any other changes in the days leading up to closing do not require a new three-day review, although the lender will still have to provide an updated disclosure.

For example, the following circumstances do not require a new three-day review:

  • Unexpected discoveries on a walk-through such as a broken refrigerator or a missing stove, even if they require seller credits to the buyer.
  • Most changes to payments made at closing, including the amount of the real estate commission, taxes and utilities proration, and the amount paid into escrow.
  • Typos found at the closing table.