What essential change does RESPA (Real Estate Settlement Procedures Act) require regarding closing costs?

The Real Estate Settlement Procedures Act (RESPA) plays a crucial role in promoting transparency in the residential real estate settlement process. One of the essential requirements set forth by RESPA is the mandate for lenders to provide borrowers with a Good Faith Estimate (GFE) that outlines the estimated closing costs. This must be delivered to the borrower within three business days of their loan application. This change was implemented to give borrowers sufficient time to understand the costs associated with their loan, allowing them to make informed choices before finalizing a mortgage.

The transition from one day to three business days for notification is significant; it allows borrowers to shop for better rates and services, potentially leading to finding ways to reduce the overall costs associated with their closing. This improved notice period is essential for the consumer's ability to adequately prepare financially for the closing and helps to ensure they are not blindsided by unexpected fees at the last minute.

The other options do not reflect the goals and requirements of RESPA. For instance, limiting payments to only cash or mandating a 50% reduction in closing costs would not align with RESPA’s purpose of clarity and understanding rather than cost control. Additionally, while full disclosures of fees are crucial, they should come in the form of a GFE