HAL M. BUNDRICK, CFP
New rules went into effect for mortgage closings in 2015. The Consumer Financial Protection Bureau’s “Know Before You Owe” initiative aimed to simplify loan disclosures and help borrowers better understand their mortgage terms — and perhaps reduce last-minute loan closing drama. (“Wait, what? That was a teaser interest rate?”)
What documents should you expect during the mortgage loan process — and what could trigger a three-day delay in the closing process? Here’s what you need to know.
TRID mortgage closing docs explained
The TILA-RESPA Integrated Disclosure Rule, also known as TRID, boils down loan disclosures to two main sets of documents, eight pages in all.
THE LOAN ESTIMATE
You’ll receive the loan estimate within three days of providing basic information to each potential lender. It details the terms of your loan, including:
- Expenses, with clear “yes” or “no” answers to important questions, such as whether each amount can increase after closing, whether or not your loan includes a prepayment penalty or a balloon payment, and which expenses are included in your escrow account.
- The projected monthly mortgage payment, including taxes, insurance and other assessments.
- Estimated closing costs and the amount of cash you’ll need to have on hand at the time of settlement.
- Information on services you can, and cannot, shop for — such as pest inspections, survey fees and the appraisal.
The loan estimate also offers data that can help you compare loan offers, including total costs, the annual percentage rate — your interest rate including fees — and the amount of interest you’ll pay over the loan term, expressed as a percentage of your total loan amount.
THE CLOSING DISCLOSURE
The closing disclosure replaces the HUD-1 Settlement Statement and the Truth-in-Lending Statement. It provides the information from your loan estimate — such as the locked-in costs of your loan and the amount you’ll need to pay at closing — in final form.
You’ll receive this document three days before your scheduled loan closing. Use this time to review the document for any changes.
What can cause a three-day delay
A substantial revision to the loan terms triggers a new three-day review. However, a change in the amount of a real estate agent’s commission, modifications to the escrow, or adjustments to prorated payments for taxes and utilities and the like don’t qualify. The CFPB says only three things can reset the 72-hour clock:
- The APR increases by more than 1/8 of a percentage point for fixed-rate loans or more than 1/4 of a percentage point for adjustable loans. But this is not new. Such rate changes have required a three-day notice since 2009.
- A prepayment penalty is added to the loan terms.
- The basic loan product changes, such as moving from a fixed-rate to an adjustable-rate loan or to an interest-only mortgage.
What you can do
The “Know Before You Owe” disclosure rule might simplify mortgage paperwork, but it doesn’t simplify the mortgage process itself. Keep the lines of communication open with your lender and seller to avoid closing roadblocks.
Delays, even short ones, can put buyers at a disadvantage to cash bidders in hot real estate markets. But understanding your loan terms can save you from headaches later.