There are new rules governing the loan process for real estate transactions. The new TILA RESPA Integrated Disclosure (TRID) rule, referred to as “Know Before You Owe”, has new forms, and timing requirements that can slow down your real estate transaction. These new rules apply to loan applications made after October 3, 2015.
The familiar Good Faith Estimate and early Truth in Lending Disclosure are replaced by a Loan Estimate. The HUD-1 and final Truth in Lending Disclosure are replaced by a Closing Disclosure.
While the new Loan Estimate and Closing Disclosure forms include new relevant information for borrowers, the timing requirement for the Closing Disclosure can be problematic.
The Loan Estimate must be delivered to the borrower no later than three (3) business days after the loan application is made. Most real estate contracts allow the purchaser/borrower 30 to 45 days to obtain a mortgage commitment, so this should not be an issue.
The Closing Disclosure must be received by the purchaser/borrower no later than three (3) business days before the loan consummation/closing. Certain changes to the loan will require a new three (3) business day Closing Disclosure to be given.
Purchasers and sellers are usually anxious to close as soon as possible. Under the old rules, it was not unusual to scramble to schedule a closing as soon as possible after the lender cleared the loan to close. Now the parties must wait.
Despite the three (3) business days requirement, some lenders are requiring that the Closing Disclosure be given 10 to 12 days prior to closing. The parties must wait even longer.
With new construction, this extra time may be costly. Many new construction contracts require the purchaser/borrower to pay additional fees, if the closing occurs more than 10 days after the issuance of the certificate of occupancy.
The bottom line is that purchasers/borrowers must learn their lender’s timing requirements up front. The purchaser/borrower should inform her or his attorney of the chosen lender’s timing requirement, especially if their lender has instituted a disclosure period of longer than three (3) business days. The attorney will need to provide for the disclosure period in the contract of sale.