Understanding the New Mortgage Closing Process and Regulations

The article below explains some of the new regulations that home buyers will be subject to during the mortgage process. I’ve been to several classes on this subject and feel that I’ve got a fairly good handle on these measures. But I suppose that remains to be seen as many mortgage loan offers have given me conflicting information about the new rules. ~Bill

By Deborah Kearns

The new TILA-RESPA Integrated Disclosure rule, also known as “TRID,” is the start of a new chapter for residential real estate. With all the documentation clients need to provide, review and sign along the way (not to mention prepping for their big move), it’s understandable if they feel overwhelmed. That’s where your Realtor can help offer reassurance and bring order to the chaos.

The new TRID closing begins well before the actual meeting, when the final documents are signed and keys change hands. If buyers get prequalified for a mortgage, they will get a prequalification letter and likely will not get the new loan estimate at that time. Some lenders may choose to do a preliminary loan estimate, though it is not required with a mortgage prequalification. Once an actual offer is made and accepted, the buyer will complete Application for a mortgage and the buyer’s lender will create a Loan Estimate in line with the terms and conditions related to the financing of the pending transaction*.

The title search is still as important now as it was pre-TRID. Be sure to analyze the results of the title search – even if no problems exist. If any issues do arise though, communication between all parties involved will be even more critical now, to cure any title discrepancies early on. These might include a lien against the property, illegal deeds, forgery, boundary/survey disputes or missing heirs, among other issues.

Assuming all goes well with inspections and other aspects of the process, the new TILA-RESPA requirements necessitate a new form called the Closing Disclosure**. The new Closing Disclosure looks a lot like the Loan Estimate, and this is by design to assure the consumer has an easier overall process understanding their transaction from start to finish. The Closing Disclosure now replaces the old HUD-1.

In the new TRID world, however, the borrower must receive their Closing Disclosure three days prior to closing to give ample time to review the documents (legal public holidays and Sundays don’t count in that timeframe). Make sure you understand what each line item represents, and that special attention is paid to closing terms and fees. Also, make sure you are aware of the exact amount needed for Closing if funds are required at closing.

Under the new rules, there are only three changes that require a new three-day review and could impact the closing date. They are: the APR increasing by more than 1/8 of a percent for fixed-rate loans, or ¼ of a percent for adjustable-rate loans; a prepayment penalty is added; or the basic loan product changes. So be sure you are firm on your price and mortgage terms as the closing date approaches. Any other changes outside of those listed will not require a new three-day review period, but an updated Closing Disclosure must be provided which could cause a delay with the lender so be sure to be in constant contact with the lender to know what may cause a delay in the process.

In addition to the Loan Estimate and the Closing Disclosure, there may also be an additional document called the Settlement Statement. This document will outline all the money flows of who paid for what, including agent commissions and loan fees. The Closing Disclosure is just that–a disclosure, and it does not account for all the funds in the transaction and the charges and credits to the buyer and the seller involved. The Settlement Statement will serve this purpose and assure all the funds are properly accounted for all parties involved.

By communicating each step of the closing process and setting expectations with all parties early on, you play an integral role in helping the transaction end in a successful closing.

*For an overview of the Loan Estimate, please visit CFPBEZ.com, and click on piece 4 “Introducing the New Loan Estimate”

**For an overview of the Closing Disclosure, please visit CFPBEZ.com and click on piece 2 “Hello Closing Disclosure and Goodbye HUD-1!”

Deborah Kearns is an award-winning writer based in Denver with more than a decade of experience in corporate communications and news journalism. She has covered the real estate industry for more than seven years.