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Posted 09/29/2015

How REALTORS® Can Comply With TRID, The “Know Before You Owe” Rule

TRID imposes a 3-business day waiting period between the issuance of a Closing Disclosure and the settlement date

Avoid Delaying Your Client's Closing

For real estate agents, mortgage lenders, and buyers and sellers of homes, the ability to get to settlement on-time is about to get tougher.

Effective October 3, 2015, the government's new “Know Before You Owe” rule is in effect.

More formally known by its acronym -- TRID -- the TILA-RESPA Integrated Disclosure is changing how mortgages are done.

Note that the name TRID contains two other acronyms -- TILA and RESPA.

TILA is an acronym which stands for Truth-in-Lending Act, and RESPA is an acronym which stands for Real Estate Settlement Procedures Act. The TILA requires lenders to disclose APR for a loan. RESPA requires lenders to issue a Good Faith Estimate.

TRID combines these two documents into a worksheet which is easier to read and understand; and also introduces a few new rules for how a loan is closed.

Because of the changes, everyone involved in the home buying process -- from home sellers and home buyers, to appraisers, lenders, title agents, and, of course, real estate agents -- will notice TRID's effect in the form of new timelines, new forms and new processes required to get a home to closing.

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What Are The New TRID Forms?

TRID stands for TILA-RESPA Integrated Disclosure rule. One of the rule's main goals is to consolidate four loan disclosures into two, and to simplify their presentation.

Many people believe mortgage loan documents, especially the ones discussing closing costs and loan terms, were too complicated under the old system. TRID aims to simplify.

The TRID introduces two new forms -- the Loan Estimate and the Closing Disclosure. The forms are designed to complementary.

A Loan Estimate (LE) will be required within three business days of a consumer’s loan application being received.

The Loan Estimate (LE) is meant to detail the mortgage being obtained in clear, concise language.

The form shows interest rate, monthly payback numbers and a schedule of payments, in addition to interest accumulation over the life of the loan, whether the rate listed is floating or locked, and a series of other loan specifics.

The Loan Estimate replaces the Good Faith Estimate document. The Loan Estimate is simpler to read and understand.

It's also required to be in a borrower's receipt no later than three business days from applying for a loan.

Buyers are required to sign the Loan Estimate, and must sign again should changes be introduced. This can include a change in loan size, interest rate, or the loan's status as floating or locked.

Electronic signature are permitted for faster processing.

TRID also introduces the Closing Disclosure (CD).

The Closing Disclosure is meant to replace the HUD-1 Settlement Statement and must be provided to the borrower at least three business days prior to settlement.

Within the Closing Disclosure, the mortgage closing costs are detailed as are loan traits such as loan size and escrow withholdings.

Borrowers are required to sign the Closing Disclosure at the point of receipt, and subsequent changes necessitate a re-issuance of the disclosure, and a new signing.

The 3-business day waiting period resets with each new issuance.

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Closing Delays Are Likely With TRID

For buyers using a home loan to purchase a house, the TRID rules impose a 3-day waiting period between the issuance of the Closing Disclosure and the actual home closing.

Therefore, consistent communication between real estate professionals, buyers and seller, title companies and attorneys, and loan originators is imperative.

Most notably, it's extremely important to notify a lender promptly of any changes to the transaction -- even minor ones. This will help the lender ensure that its Closing Disclosure is accurate.

Remember, an inaccurate Closing Disclosure is required to be corrected, and a loan closing cannot occur until 3 business days after the most recent Closing Disclosure is issued.

Changes can delay a closing.

It's recommended, then, that transactional details get worked out no less than two weeks prior to closing. This includes determining state and local government costs, title search fees, and, in states where attorneys are used to close real estate transactions, such as New York, attorney's fees.

Also -- and this one is key -- in order to prevent delays at closing, home buyers should be pro-active about their pending hazard insurance policy.

Few insurance companies provide insurance binders prior to the completion of a home appraisal, and many will require a firm closing date. These items aren't often known until several weeks into a transaction but the cost of homeowners insurance is required for proper TRID disclosure.

Therefore, a strong relationship with an insurance agent can minimize the chance for delays. Don't save the homeowners insurance piece until the last minute.

Bear in mind that if your buyer is uncomfortable with electronic disclosures, additional time will be necessary as the closing disclosure is required to be delivered three days prior to closing.

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More Ways To Minimize TRID Closing Delays

As a real estate agent, there are other steps you can take to ensure a smooth, on-time closing.

For example, you can share all contracts (and amendments) immediately with lenders, title companies, and closing agents party to the transaction.

You can also schedule your pre-closing walk-through home inspections for a date other than the date of closing.

Ideally, you'll want to do your walk-through 5 days prior to closing. This is because any fixes or repairs which requires an amendment to the contract will trip the 3-business day waiting period prior to closing which is required by TRID.

If the walk-through is performed in advance of closing, adjustments can be made without affecting the home's contracted sale date.

Here are some other steps real estate agents can take to ensure on-time closing:

  • Create accountability with lenders, appraisers, and title insurance and settlement service partners by creating an accurate timeline for closing
  • Train yourself and your teams, so everyone can answer TRID-related questions for homebuyers
  • Teach your buyers (and sellers) about TRID, and set proper expectations regarding closing dates
  • Encourage your buyers to get pre-approved for a mortgage -- not just pre-qualified! -- to help reduce loan closing timelines
  • Discuss with buyers their preferences for receiving electronic disclosures; and, encourage them to lock their interest rate early in the process
  • Whenever possible, once a loan application is in-process, minimize purchase agreement amendments

By following these recommendations, real estate professionals can distinguish themselves from their peers, and perform their jobs more ably and with competence.

Most importantly, though, the costly and unnecessary delay of a closing can be avoided.

What Are Today's Mortgage Rates?

Mortgage rates remain low and home buying strong nationwide. And, now, with TRID in effect, it's more important than ever to understand the home loan process.

Take a look at today's live mortgage rates now. Social security numbers are not required to get started, and all quotes come with instant access to your live credit scores.

Click to see today's rates (Jul 28th, 2016)

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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