TRID-AVOIDING DELAYS AT CLOSING
AVOID DELAYING YOUR CLIENT'S CLOSING
For real estate agents, mortgage lenders, and buyers and sellers of homes, the ability to get to settlement on-time is about to get tougher.
Effective October 3, 2015, the government's new “Know Before You Owe” rule is in effect. More formally known by its acronym -- TRID -- the TILA-RESPA Integrated Disclosure is changing how mortgages are done. Note that the name TRID contains two other acronyms -- TILA and RESPA. TILA is an acronym which stands for Truth-in-Lending Act, and RESPA is an acronym which stands for Real Estate Settlement Procedures Act. The TILA requires lenders to disclose APR for a loan. RESPA requires lenders to issue a Good Faith Estimate.
TRID combines these two documents into a worksheet which is easier to read and understand; and also introduces a few new rules for how a loan is closed. Because of the changes, everyone involved in the home buying process -- from home sellers and home buyers, to appraisers, lenders, title agents, and, of course, real estate agents -- will notice TRID's effect in the form of new timelines, new forms and new processes required to get a home to closing.
WHAT ARE THE NEW TRID FORMS?
TRID stands for TILA-RESPA Integrated Disclosure rule. One of the rule's main goals is to consolidate four loan disclosures into two, and to simplify their presentation. Many people believe mortgage loan documents, especially the ones discussing closing costs and loan terms, were too complicated under the old system. TRID aims to simplify. The TRID introduces two new forms -- the Loan Estimate and the Closing Disclosure. The forms are designed to complementary. A Loan Estimate (LE) will be required within three business days of a consumer’s loan application being received. The Loan Estimate (LE) is meant to detail the mortgage being obtained in clear, concise language.
The form shows interest rate, monthly payback numbers and a schedule of payments, in addition to interest accumulation over the life of the loan, whether the rate listed is floating or locked, and a series of other loan specifics. The Loan Estimate replaces the Good Faith Estimate document. The Loan Estimate is simpler to read and understand. It's also required to be in a borrower's receipt no later than three business days from applying for a loan. Buyers are required to sign the Loan Estimate, and must sign again should changes be introduced. This can include a change in loan size, interest rate, or the loan's status as floating or locked.
Electronic signature is permitted for faster processing. TRID also introduces the Closing Disclosure (CD). The Closing Disclosure is meant to replace the HUD-1 Settlement Statement and must be provided to the borrower at least three business days prior to settlement.
Within the Closing Disclosure, the mortgage closing costs are detailed as are loan traits such as loan size and escrow withholdings.
Borrowers are required to sign the Closing Disclosure at the point of receipt, and subsequent changes necessitate a re-issuance of the disclosure, and a new signing. The 3-business day waiting period resets with each new issuance.
CLOSING DELAYS ARE LIKELY WITH TRID
For buyers using a home loan to purchase a house, the TRID rules impose a 3-day waiting period between the issuance of the Closing Disclosure and the actual home closing. Therefore, consistent communication between real estate professionals, buyers and seller, title companies and attorneys, and loan originators is imperative. Most notably, it's extremely important to notify a lender promptly of any changes to the transaction -- even minor ones. This will help the lender ensure that its Closing Disclosure is accurate.
Remember, an inaccurate Closing Disclosure is required to be corrected, and a loan closing cannot occur until 3 business days after the most recent Closing Disclosure is issued. Changes can delay a closing. It's recommended, then, that transactional details get worked out no less than two weeks prior to closing. This includes determining state and local government costs, title search fees, and, in states where attorneys are used to close real estate transactions, such as New York, attorney's fees.
Also -- and this one is key -- in order to prevent delays at closing, home buyers should be pro-active about their pending hazard insurance policy. Few insurance companies provide insurance binders prior to the completion of a home appraisal, and many will require a firm closing date. These items aren't often known until several weeks into a transaction but the cost of homeowner’s insurance is required for proper TRID disclosure. Therefore, a strong relationship with an insurance agent can minimize the chance for delays. Don't save the homeowners insurance piece until the last minute. Bear in mind that if your buyer is uncomfortable with electronic disclosures, additional time will be necessary as the closing disclosure is required to be delivered three days prior to closing.
MORE WAYS TO MINIMIZE TRID CLOSING DELAYS
As a real estate agent, there are other steps you can take to ensure a smooth, on-time closing. For example, you can share all contracts (and amendments) immediately with lenders, title companies, and closing agents party to the transaction. You can also schedule your pre-closing walk-through home inspections for a date other than the date of closing. Ideally, you'll want to do your walk-through 5 days prior to closing. This is because any fixes or repairs which requires an amendment to the contract will trip the 3-business day waiting period prior to closing which is required by TRID. If the walk-through is performed in advance of closing, adjustments can be made without affecting the home's contracted sale date.
Here are some other steps real estate agents can take to ensure on-time closing:
Create accountability with lenders, appraisers, and title insurance and settlement service partners by creating an accurate timeline for closing
Train yourself and your teams, so everyone can answer TRID-related questions for homebuyers. Teach your buyers (and sellers) about TRID, and set proper expectations regarding closing dates encourage your buyers to get pre-approved for a mortgage -- not just pre-qualified! -- to help reduce loan closing timelines.
Discuss with buyers their preferences for receiving electronic disclosures; and, encourage them to lock their interest rate early in the process
Whenever possible, once a loan application is in-process, minimize purchase agreement amendments by following these recommendations, real estate professionals can distinguish themselves from their peers, and perform their jobs more ably and with competence. Most importantly, though, the costly and unnecessary delay of a closing can be avoided.
What to expect at Closing?
Nationwide, nearly six million new and existing homes are expected to be sold this year, the largest tally in nearly 10 years. Meanwhile, each transaction will culminate in a "closing", the legal process by which ownership of a home changes. The closing is the last step before you get your keys.
Even experienced home buyers can get flummoxed in a closing, where unfamiliar documents and customs can lead to stress. Therefore, it can help to learn a little about the real estate closing process to help you be prepared and ready to receive the keys to your new home.
WHAT IS A REAL ESTATE CLOSING?
Real estate closings go by different names, depending on where you live. In some parts of the country, they're known as "closings" and in others, they're known as "settlements". In California, closings are known as "escrow" (which is not be to confused with this other escrow). Regardless of where you live, however, the purpose of a closing is the same -- to legally transfer ownership from seller to buyer; and, for homes financed with a mortgage, to sign the appropriate home loan documents. Other documents are signed at closing, too, including certain disclosures and guarantees. Buyers can expect to sign and/or initial 150 times or more.
HOME BUYING: BETWEEN CONTRACT AND CLOSING
The path to your closing begins the day your purchase agreement gets signed. In the agreement, a closing date is assigned, which is agreed upon by all parties; and a location at which the closing will occur is assigned as well. Purchase closings are typically scheduled for between 30 and 60 days into the future, although some closings may be scheduled for sooner than this; and some closings may be scheduled for later. For contracts written on new construction, closings may not occur for one year or longer. This period between contract and closing is sometimes called being "in escrow"; the home sale is pending, but not yet complete. It's during this time that the buyer performs additional due diligence, including ordering an inspection of the home; and, begins to get mortgage financing in place.
The first few days after signing can feel like a rush. If you've been pre-approved previously, once you're under contract you can choose to lock today's mortgage rates. However, if you have not yet spoken to a lender, you'll want to do that post-haste. You'll also want to have your mortgage approval paperwork handy. Although mortgage approvals can be issued quickly, delays can derail your closing and cost you money -- and time-to-close is getting lengthier, on average, nationwide.
According to Ellie Mae's Origination Insight Report, the average number of days require to close on a purchase loan reached 45 days in June, which is the longest in more than a year.
During the approval process, your lender will request income and asset verification, signatures on disclosures, and other documents required to meet loan guidelines. It will also commission an appraisal of the home-to-be-purchased. All of these steps take time and, once completed, the lender will issue a final underwriting approval. This is known as being "clear-to-close".
HOME BUYING: CLOSING DAY
Closings are typically officiated by a company known as a Title Agency; or, by an attorney. This, too, depends on state custom. As one of the final steps of the closing, once all required signatures have been recorded, money is transferred from buyer to seller. The money is typically transferred in two parts.
The first part is the remaining portion of the homebuyer's down payment, which is the down payment amount minus whatever earnest money was paid on the date of contract. Funds to the seller may not be paid in cash or with a personal check. Only wired funds or a cashier’s check will be accepted.
The second part is the funds from the lender, which makes up the difference between the buyer's down payment and the home sale price. Note that for zero-down loans such as the VA loan and the USDA loan, there is no down payment for a buyer to make; and the earnest money deposit is typically returned in full.
Next, after all documents have been signed, and all funds distributed, the deed of ownership will be transferred from seller to buyer, and recorded by the officiant -- either the title company representative or the attorney. It's at this point that the buyer becomes a homeowner.
To keep your closing going smoothly, though, there are some documents you'll want to bring with you.
First, make sure to pack a valid government ID. This can be your driver’s license, your passport, or anything else you use to identify yourself officially. You should also bring a copy of your new home owners insurance policy, which shows that your new home is covered beginning with the date of your closing; plus, proof of payment of the same.
Lastly, have your "cash-to-close" ready in advance, whether via wire or cashier’s check (in most cases a wire will do). This amount will have been communicated to you by your lender.
Everything else will be waiting for you at the closing. Contact your title company and go over the numbers with them.