On October 3, 2015, the rules changed for buyers who need a mortgage to purchase a home. Both buyers and sellers may be impacted by these rule changes because if there is a delay due to the loan documents, the closing and any subsequent closings will be postponed. The desire to have a back to back same day sell/buy closings maybe over owing to due the TRID rule.
The “Truth-in-Lending RESPA (Real Estate Settlement Procedures Act) Integrated Disclosure” Rule or the TRID rule has taken the three previously required mortgage loan disclosure documents and consolidated them into the following two forms: a Loan Estimate (LE) that must be delivered or placed in the mail no later than the third business day after receiving the borrower’s application, and a Closing Disclosure (CD) that must be provided to the borrower at least three business days before the loan completion or closing.
WHAT IS THE LOAN ESTIMATE (LE)
Consumers who have applied for residential loans on or after October 3, 2015 will now be receiving the Loan Estimate (LE) which has replaced the Good Faith Estimate (GFE) and the Preliminary Truth-in-Lending (TILA).
In order for lenders to properly prepare the Loan Estimate, borrowers must advise them of all known expenses relating to the purchase when applying for the loan. The expenses should include the real estate broker’s transaction fee, if any, as well as the cost of all home inspections.
The Loan Estimate will then summarize the loan, including these costs, so the buyer can use it as a comparison tool to shop other lenders for a loan. Any questions the buyer may have regarding the Loan Estimate should be discussed directly with the lender who prepared the form.
Once a buyer has chosen a lender and has advised that lender to start processing the application, he or she should gather and submit all of the lender’s necessary documents such as tax returns and pay stubs as early as possible in the process.
The lender will start charging buyers fees for processing the loan once the buyer has advised the lender to proceed.
BUYERS CLOSING DISCLOSURE (CD)
The Closing Disclosure (CD) which will be prepared and provided by the lender is replacing the HUD-1 Settlement Statement (HUD) and the Final Truth-in-Lending Statement (TILA). Under TRID, the Closing Disclosure must be, at a minimum, in the hands of the buyer three (3) business days before the scheduled closing so that the buyer has time to review it before signing the loan documents. The three days begin when the buyer receives the form.
Although TRID does require that the buyer receive the Closing Disclosure three days in advance, it does not necessarily mean that the closing costs be known to the exact penny three days before closing. The Closing Disclosure can be changed up to the point of closing and it can be corrected even after a loan has closed.
There are, however, some last minute changes to the loan product that would require a new 3-day review period the closing would be delayed. Under TRID, if the basic loan product changes after the Closing Disclosure has been delivered to the buyer then it must be corrected and a second or new 3-day review period would have to pass before the buyer became obligated to the loan.
These last minute changes include a fixed-rate mortgage changing to an adjustable-rate mortgage, the annual percentage rate (APR) changing by more than 1/8% or if a prepayment penalty is added.
As noted above the Closing Disclosure for the buyer will be prepared by the lender. Closing agents will continue to prepare the seller’s Closing Disclosure and submit it to the lender for review.
For further information or questions regarding the implementation of the TRID rule, please go to Consumer Financial Protection Bureau (CFPB).
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