KEY FACTS ABOUT THE NEW HOME LOAN PROCESS
Homebuyers and sellers should take note of the significant disclosure changes set to take effect Oct. 3. Known as TILA/RESPA Integrated Disclosure (TRID) rules, these changes will directly affect buyers seeking mortgages, and sellers considering financed offers. To better understand what’s ahead, we discussed the specifics with Michael Iorio, President of Private Mortgage Advisors, LLC, compiling fundamental changes and helpful tips for buyers and sellers in the bay area real estate market and more.
SPECIFIC CHANGES
The new TRID rules aim to simplify forms and give consumers more notice to review and evaluate their options before a loan closes. Prior to the switch, title and escrow companies prepared a HUD-1 form, which itemized all the charges for a buyer and seller when closing a real estate transaction. This generally includes interest rates, taxes, insurance, assessments, as well as title and escrow fees. Prior to the TRID changes, borrowers, title companies, agents and sellers were able to modify the HUD-1 on the same day they signed their loan documents to a certain degree.
Starting with new loan applications in October, borrowers will receive a Loan Estimate (LE) within three days of applying for a loan. The LE combines the current Good Faith Estimate (GFE) and Initial Truth in Lending (TIL) forms into one disclosure. The HUD-1 will be consolidated into a Closing Disclosure (CD) form, which will be prepared by the mortgage bank instead of the title company. Unlike before with the HUD-1, the CD must now be delivered three days before the borrower can sign any loan documents.
“The TRID rules are being implemented to provide the borrower more transparency, and more time as they consider making the biggest purchase of their lives,” says Iorio. “It’s all being done to increase borrower knowledge, protection, and consumer education.”
However, these TRID rules will not apply to reverse mortgages, home equity, or mortgages secured by a mobile home that isn’t permanently attached to land.
MARKET EFFECTS
A portion of the real estate community fears that the new TRID rules will lead to delays in buying and selling homes, as Realtors may build in extra days to accommodate the timing requirements of the new Closing Disclosure.
In seller-dominant markets like Silicon Valley and the peninsula, where all-cash offers make up 25 to 50% of all sales, some believe buyers seeking mortgages will have trouble competing with all-cash offers.
“There are concerns it may push sellers to accept more cash than finance offers, which can limit the marketplace, because not everyone can buy a home with cash,” says Iorio. “Or the seller needs to be comfortable that the mortgage lender providing the loan is familiar with these TRID requirements and that its system is set up to deliver documents compliantly and close the real estate transaction on time.”
TIPS FOR BUYERS AND SELLERS
As the lending regulations shift, it’s imperative for both buyers and sellers to keep a few things in mind throughout this year. During the first six months, communication is imperative.
Real estate agents representing borrowers should ensure they know all parties involved.
“It really takes a team now to close a loan and that’s the partnership between your real estate agent, your lender, and your title company,” says Iorio. Buyers should have an open environment with their lender and know the mortgage company’s capabilities.
While it may sound easy to prepare CDs, a mortgage company may be dealing with a hundred loans per month. With that said they must be properly staffed, familiar with the new TRID regulations, and have the right systems in place to ensure success.
On the other side of the spectrum, sellers should be both understanding and knowledgeable about where the buyer’s financing derives from to ensure they can close escrow on time. Iorio also recommends that sellers remain aware of these new processes and shift their perspective to understand the changing dynamics of the industry.
While new applicants won’t see the effects of these new TRID rules until Oct. 3rd or beyond, it’s never too early to become familiar with the new regulations. For further information on the new disclosure requirements contact Private Mortgage Advisors LLC at pmahomeloans.com.
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