Applying for a loan and closing on a new home is about to change in October.
In November 2013, the Consumer Financial Protection Bureau (CFPB) combined the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) disclosures and regulations. This means that all settlements for real estate in the United States must now use new closing disclosure forms.
Initially, the new TRID forms and procedures were to be implemented on Aug. 1, 2015. However, because of the vast amount of changes to the lender industry, these changes were delayed to begin on Oct. 3. This date is now considered final, and these changes will be coming.
Homeowners who have been through the buying and selling process will see some changes at the closing table starting with any purchases originating after Oct. 3. A new Closing Disclosure and Loan Estimate will replace the HUD-1, the settlement statement used in all real estate transactions. This new Closing Disclosure will be more detailed and give the purchaser a much more in-depth look at the costs associated with both their loan and closing costs. As the CFPB has stated, the goal is for the purchaser to, “know before you owe.”
In addition to new forms, there will also be changes to the closing process and review of the approved loan. For example, starting on Oct. 3, all closing forms must be ready three days prior to closing. This is a drastic difference from our current practice and home purchases can be closed once the final HUD-1 statement is produced (normally two days prior to settlement).
Because of these changes, most Realtors, lenders, and title companies are now recommending that buyers get everything needed to the lender at least seven days before closing. This way, the three-day review period will not provide any surprises.
What are the implications of these new rules and regulations? As David Toaff, loan officer with First Home Mortgage, describes it, consumers should expect a slightly longer time from contract to close. Whereas the traditional contract period is about 30 days, TRID changes will likely push the contract period to 45 days because of the increase in review period after loan approval. This number of days may shorten eventually to 40 days, but the first months of implementing new forms and review periods will need a conservative number of days to close.
For buyers who are interested in purchasing a home over the next month, there should certainly be an understanding of being prepared in the loan process. These procedures are certainly not a surprise to the industry, but they will take time to adjust for all parties.
Sellers who are putting their homes on the market this fall should understand how these changes might affect their sale. While the D.C. market is primarily seller focused, offers that include financing may automatically be geared toward a 45-day close to protect the buyer.
In all, these new TRID guidelines are in place to protect the purchaser from predatory lending. This initial rollout of new forms and rules will certainly take time for the market to respond, but as lenders, buyers, sellers, and agents better understand them, the market will adjust accordingly.
Tim Savoy is a real estate agent with Coldwell Banker Residential Brokerage, Dupont Circle. Reach him at 202-400-0534 or at firstname.lastname@example.org. David Toaff is a loan officer with First Home Mortgage. Reach him at 610-348-3772 or at email@example.com.