TRID 101: Explained in Plain English – What you need to know about changes to real estate transactions
Although TRID sounds like a creature you’d find in a science fiction movie, it’s actually something that can benefit you — and not through any diabolical means. TRID is an acronym that stands for “TILA-RESPA Integrated Disclosure.” A federal regulation, it was enacted to help protect consumers like you.
Whether you’re looking to buy your first home in the city or a second home in the mountains, you’ll come across a TRID from your lender. So it behooves you to spend a little time to learn the simple, basic facts about this integrated disclosure rule and how it will affect you. Here then is a primer about what you need to know about the TRIDs.
Breaking It Down
The TRID was designed to help people buying a new home. It is, therefore, something you need to know about if you’re considering a new home purchase. Let’s break down the name. “TILA-REPSA Integrated Disclosure” is still a mouthful. Examining each word in this moniker will help explain exactly what it is and what it does:
TILA is an acronym that stands for the Truth In Lending Act. Passed into federal law in 1968, the TILA protects consumers from unscrupulous creditors. The TILA forces lenders to disclose their terms — interest rate, total costs and length of the loan — to you before you sign the loan agreement. It also introduced the three-day waiting period, during which you can cancel the agreement without penalty. That also protects consumers from high-pressure sales techniques.
RESPA is another acronym. It represents the Real Estate Settlement Procedure Act. Enacted as a federal law in 1974, the RESPA provides similar protections as the TILA, but specifically for real estate transactions. The standardized Good Faith Estimate (GFE) that you received in past real estate purchases — detailing the costs and terms of your loan — came from the RESPA. This legislation has saved homebuyers billions of dollars while it’s been in effect.
The TRID integrates both the TILA and the RESPA into one new rule, so you could say that it places the best of both worlds (or laws) into one. Another way the TRID is integrated is that it combines multiple statements into two documents. These two statements are disclosures, so let’s look at that word…
A disclosure is information shared or revealed. As it pertains to real estate transactions, a disclosure from a lender reveals the full terms of your agreement to borrow money for a mortgage. A disclosure can be complex, listing all the costs and fees you have to pay in closing your loan, how long you have to pay back the loan and at what percentage. A disclosure is a legally binding document and it’s legally required during a real estate transaction, so yes, it’s important, both to you and the lender.
What’s the TRID Difference?
By now, you should understand that the TILA and RESPA involved disclosures from lenders or creditors to borrowers. In the past, homebuyers were presented with multiple disclosures at various times in the process. You got a GFE and a TILA disclosure when you first applied for a mortgage loan. You received a HUD-1 settlement statement and a final TILA disclosure at your closing. Confusing, isn’t it?
As of October 3, 2015, you’ll only see two integrated disclosures:
1. The Loan Estimate (LE)
2. The Closing Disclosure (CD)
The LE integrated disclosure replaces the GFE and the TILA disclosures. The CD integrated disclosure replaces the HUD-1 and the final TILA disclosures. So the TRID means less paperwork for you. And both the LE and the CD are similarly structured, making them easier to compare and understand.
You Get More Time, Too
Besides receiving multiple, different and confusing forms from your lender during past loan applications, the process gave you little time to actually study the disclosures. For example, you were presented with the HUD-1 settlement statement at your closing. That didn’t give you much time to look for errors and omissions.
Under the TRID rule, you get time built into the process to review the integrated disclosure forms. Along with the other safeguards, the TRID process gives you the time you need to make sure you understand and agree with the terms of your contract.
The LE and CD Timeline
For example, you must receive the LE within three days of applying for your loan. That gives you time to review it — and potentially compare it to the same LE form from other lenders. That’s important because by comparing LEs, you can see all the costs and fees of each lender side by side.
After you choose a lender, find the property you want to buy and negotiate a price, you and your representatives (real estate agent, lender and attorney) work toward closing the loan. The lender must send you the CD at least three days before your closing. The time gives you the chance to examine the integrated disclosure form, which details all the costs and all the terms of the loan. This is your final opportunity to make sure everything is exactly as you expected, as outlined for you by your loan officer.
TRIDs Save You Time and Money
In the final analysis, these integrated disclosure forms don’t cost you anything extra. It’s the law, so lenders and lawyers must abide by it. It’s on lenders to issue the new disclosures on time and completed to your satisfaction.
TRIDs can save you money because this simplified and integrated process makes it easier for you to review and compare disclosure forms. The chance that you’ll make a mistake or miss something important has been reduced. Integrated disclosure forms help you streamline your understanding of the loan details in a more consumer-friendly form.
The TRID is an example of government agencies trying to make life easier for homebuyers. You can get documentation, like a user’s guide, that walks you through the TRID forms in detail. The Consumer Financial Protection Bureau (CFPB) offers them, free of charge. In the meantime, contact Zack Adam of Prime Mortgage Lending, Inc. if you have specific questions. He loves helping homebuyers.