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September 26, 2015 2:30 pm
The real estate world is buzzing about the upcoming new way of closing the sale on real estate property. It's called TRID or TILA-RESPA Integrated Disclosure, where TILA stands for Truth in Lending and RESPA for Real Estate Settlement Procedure Act. TRID will take effect October 3, 2015.
What it means for consumers: according to the Consumer Financial Protection Bureau (CFPB) TRID will simplify the process and offer more transparency to home buyers acquiring a mortgage for their home purchase. The Good Faith Estimate and initial TILA will be replaced by a Loan Estimate, while the Closing Disclosure will replace the HUD-1 Settlement Statement and final TILA. A Home Loan Toolkit has been designed by CFPB coaching the future borrower through all the steps of the loan process. I like the simplicity of the Toolkit and clear explanations.
The tricky part will be the time limitations. As soon as a home buyer has applied for the loan, the lender will construct the Loan Estimate, to be provided to the home buyer within 3 days after the application. It contains 6 vital pieces of information: personal info about the borrower, income, identification and value of the property, and the loan amount. Good to know is that the lender may not charge any fees nor collect credit card numbers until the borrower has received the Loan Estimate and indicated the wish to proceed. The Closing Disclosure which gives the costs of the transaction, needs to be delivered 3 business days before closing! And here's the stickler, if anything changes in the finances a new Closing Disclosure will need to be drafted. This may result in the delay of the closing because borrower is given another 3 days to think about the new version.
As usual, a lot is going on behind the scenes before a transaction goes to closing that consumers usually aren't aware of but Realtors need to take into account when scheduling e.g. the final walk through or ordering a home warranty. To be on the safe side, it is now recommended to do these 7 days prior to closing. Also slightly different is the fact that now the lender will draft the Closing Disclosure instead of the closing attorney preparing the HUD-1. TRID offers several benefits in comparison with the old way of doing things. The most important one is that it will be easier to understand all the forms. It will also help consumers in their decision whether they can afford the loan. Lenders will have less paperwork to deal with and some say it will be less confusing on their part in the process.
Time will tell if the new system will perform as planned. I foresee the possibility of hitting some bumps in the road. To give all parties plenty of time to prepare and correct potential pitfalls, counting on 45 days from contract to closing would be smart. By the way, all of the above does NOT apply to All Cash transactions, Home Equity Lines of Credit, Reverse Mortgages, and Mobile Homes.