If you are buying or selling a house expect a longer closing time (45+ days)

"Know Before You Owe" Initiative

The Consumer Financial Protection Bureau's (CFPB) "know before your owe" initiative aims to better explain the loan implications to borrowers so that they better understand the mortgage terms they are signing up for. This will likely lead to longer loan processing periods but should alleviate any last-minute shocks or drama.

The new process will lengthen the amount of time it takes to close on a property from 30 to 45+ days, and homebuyers should take this into consideration when planning ahead.

TRID Explained

The TILA-RESPA Integrated Disclosure Rule (TRID) came into effect on Oct 3, 2015, and comprises two main sets of documents, eight pages in all; the loan estimate, and the loan disclosure.

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 an amount can increase after closing, whether or not your loan includes a prepayment penalty or a balloon payment, and what 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 one loan offer against another, including total costs, annual percentage rate (with fees) and the total 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. You’ll receive this document three days before your scheduled loan closing.

The closing disclosure provides the information from your loan estimate — such as the locked-in costs of your loan and exactly what you’ll need to pay at closing — in final form. You’ll want to make sure that you’re aware of any changes.

What can cause a three-day delay

Under the new rule, a substantial change to the loan terms triggers a new three-day review. A change in the amount of a real estate agent’s commission, modifications to the escrow and 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:

1. The APR (annual percentage rate) increases by more than 1/8 of a percentage point for fixed-rate loans or 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.
2. A prepayment penalty is added to the loan terms.
3. 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 may simplify mortgage paperwork, but it doesn’t simplify the mortgage process itself. If you’re buying or selling a house prepare for a longer closing process. You might want to adjust the term of your rate lock accordingly. And keep the lines of communication open with your lender and seller to avoid closing roadblocks.

Delays, even short ones, can put a buyer at a disadvantage to cash bidders in hot real estate markets. But understanding your loan terms can save you from headaches later.

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