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If you’re planning to apply for a home mortgage, chances are, you might come across the phrase “Know Before You Owe” or the term “TRID. So, what is TRID in real estate? As a homebuyer, you’ll need to understand what it means and its implications.
This federal consumer-protection law is meant to protect consumers – the home buyers – from predatory lending practices. It outlines the type of information lenders are required to disclose so that the consumers can make informed decisions.
What is TRID in real estate?
TRID, short for TILA-RESPA Integrated Disclosures, is a compilation of guidelines that the Consumer Financial Protection Bureau (CFPB) enforces in order to prevent some mortgage lenders from using loopholes against consumers.
These regulations outline the mortgage information lenders must give to borrowers and the deadlines by which they must do so. Moreover, TRID limits the costs that lenders may impose as a mortgage matures. After 2015, all mortgage lenders have to follow TRID rules or “Know Before You Owe” rules at the time of issuing a mortgage or offering an estimate.
The ultimate goal is to help borrowers better understand their mortgage options with information on mortgages, credit, and fees. It’s imperative that consumers read and understand all the info before making an offer on a house and agreeing to any monthly loan payment.
How and why did TRID come about?
This rule took effect in 2015 with the intent to harmonize disclosures and regulations – namely the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA). The rule has been amended twice by CFPB after assessing its effect on consumers and industry professionals. And, how they understand and comply with TRID rules.
Truth In Lending Act (TILA)
These regulations were set in 1968 by the government to discourage dishonest credit lending practices and unfair credit card billing practices. They required lenders to offer written documentation and upfront information about interest rates and mortgage payments before the borrower signed to lock the mortgage rate.
What’s more, the rule gives the borrower a grace period of 3 days to back out of the loan without losing any money. This is the “three-day rule” or the right of rescission. Basically, it gives borrowers sufficient opportunities to compare lenders before making a final decision.
The Real Estate Settlement Procedures Act (RESPA)
This regulation too protects a borrower from unfair real estate practices. It makes it necessary for mortgage lenders to provide complete info on settlement services, consumer protection laws, and real estate transactions. The idea is to help the consumer accurately estimate the ongoing fees and expenses.
Additionally, it eliminates the idea of referral commissions so that there’s no chance of a lender increasing the cost of the loan. Finally, RESPA also helps governs the use of escrow accounts. It prohibits mortgage lenders from withdrawing large amounts of money from an escrow account before the final loan approval.
What disclosures does TRID require?
It mandates that the mortgage lender provide the borrower with two unique disclosures: the loan estimate and the closing disclosure.
The loan estimate
This refers to an estimation of the principal loan amount, interest rates, closing costs, and mortgage features. The lender can’t change the agreement terms and conditions significantly during the preapproval process and must provide a good faith estimate.
What’s more, the borrower can take estimates from multiple mortgage companies to compare mortgage rates and understand how much house they can afford.
The closing disclosure
When it’s time to sign and finalize your mortgage loan, you’ll get the closing disclosure which has the same information as the loan estimate. The borrower needs to make sure that both documents are similar. Of course, a few taxes and insurance estimates may have changed – but they should not change much. This practice is to prevent any “bait-and-switch” schemes whereby a mortgage lender may change the loan terms, closing costs, and interest rates, or add unnecessary fees, when it’s time to close the loan.
What are TRID guidelines?
Every mortgage lender needs to follow TRID guidelines at the time of offering a loan. The guidelines include:
- Elimination of any application fees: A mortgage lender is not permitted to impose fees before providing you with a loan estimate. They may charge a fee to run your credit report though.
- Issuance of the loan estimate within 3 days: The loan lender must issue the loan estimate within 3 days of receiving your loan application so that the borrower has sufficient time to ask the lender any questions they may have.
- Maintenance of the estimates and disclosures file: After the signing of the mortgage, the lender must keep a copy of your loan estimate on file for at least three years and a copy of the closing disclosure for at least five years.
- Give the borrower a 3-day waiting period: The lender must wait for at least 3 business days after giving the borrower the closing disclosure so that they get time to finalize the loan.
- Contact information in the loan estimate: The lender must provide their as well as the loan officer’s contact information in the loan estimate.
How do TRID regulations protect home buyers?
TRID regulations guarantee that the consumer fully understands the terms of the loan they accept. Moreover, it protects them from any unfair or high-pressure sales techniques. The lender cannot change or go back on the loan terms and conditions.
But, TRID also adds a new level of obligation for the homebuyer. They must get in touch with their preferred mortgage provider and sign an additional document known as the Intent to Proceed document – failing which the lender can’t legally continue with the money lending process.
Another thing to remember is that the borrower, upon receiving the closing disclosure, needs to contact the lender so that they can start the 3-day “timer”.
How does TRID affect home sellers?
Although the seller will not be directly concerned with the buyer’s mortgage terms and lender, they will be affected if the mortgage process is delayed due to any issues with the TRID regulations.
Several lenders now claim that a house loan takes an average of 45 to 60 days to finalize a loan. This is due to the mandatory waiting periods and disclosure timelines. If you’re selling your house, you need to keep the TRID requirements in mind before planning the next step.
TRID is a set of mortgage disclosure rules that specify what details mortgage lenders must give the borrowers and when they must do so. A homebuyer can use TRID regulations to their advantage – in finding the best mortgage and completely understanding what they are getting into. The best part is, once the borrower fully understands what is TRID in real estate, they can receive multiple loan estimates from different lenders and finally select the best home loan.