What Is a TRID and How Does It Affect Your Mortgage?
Understand TRID rules and how they enhance transparency and clarity in your mortgage process, empowering informed decisions.
TRID, an acronym for TILA-RESPA Integrated Disclosures, refers to a set of rules implemented to clarify and simplify the mortgage disclosure process for consumers. This initiative, often called “Know Before You Owe,” aims to help individuals understand loan terms and compare offers more easily. The Consumer Financial Protection Bureau (CFPB) enforces these guidelines, which became effective on October 3, 2015. These rules standardize the information lenders must provide, protecting consumers by reducing confusion and excessive paperwork.
Core Components of TRID
Before TRID, consumers received multiple, sometimes overlapping, forms under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). TRID replaced these with two standardized forms: the Loan Estimate (LE) and the Closing Disclosure (CD). The Loan Estimate provides initial cost estimates, while the Closing Disclosure details the final costs. This rule applies to most closed-end residential mortgage loans, including purchase money mortgages and most construction loans. However, it generally does not apply to home equity lines of credit (HELOCs), reverse mortgages, or loans not secured by real property.
The Loan Estimate
The Loan Estimate (LE) is a three-page standardized document that lenders must provide to applicants after receiving a mortgage application. Its purpose is to offer a preliminary disclosure of the loan terms and estimated closing costs, allowing consumers to compare offers from different lenders. The first page summarizes the loan terms, including the loan amount, interest rate, and estimated monthly payment, along with estimated taxes and insurance. Consumers should review whether the interest rate is locked and if any prepayment penalties or balloon payments apply.
Page two of the LE details the loan costs and other costs associated with the transaction. This section breaks down origination charges, which are fees charged by the lender, and lists services that consumers can or cannot shop for, such as appraisal fees or title services. The third page includes important comparisons, such as the total paid in five years, the Annual Percentage Rate (APR), and the Total Interest Percentage (TIP), which indicates the total interest paid over the loan’s life.
The Closing Disclosure
The Closing Disclosure (CD) is a five-page form that provides the final details of a mortgage loan and its associated closing costs. It is intended to be a comprehensive summary that borrowers review before finalizing their loan. The CD includes finalized loan terms, projected payments, and a detailed breakdown of all closing costs. Consumers should carefully compare the CD to the initial Loan Estimate to identify any discrepancies.
The CD details loan costs, other costs, and summaries of transactions, showing what the borrower and seller are responsible for. A significant section is the “Calculating Cash to Close,” which indicates the total amount of funds the borrower needs to bring to closing. While some changes between the LE and CD are allowed, certain fees, such as those paid to the lender or for services where the consumer has no choice, generally have zero tolerance for increases. Other fees, like those for third-party services the consumer could not shop for, may have a 10% tolerance for increases. If costs differ significantly or new items appear, borrowers should question their lender for clarification.
TRID Timeline and Process
The TRID rules establish specific timelines for the delivery of the Loan Estimate and Closing Disclosure forms. Lenders must provide the Loan Estimate to a borrower within three business days of receiving a complete loan application. This three-day period allows borrowers time to review the estimated terms and costs before proceeding. A complete application typically includes the borrower’s name, income, Social Security number, property address, estimated property value, and the loan amount sought.
The Closing Disclosure must be received by the consumer at least three business days before the scheduled loan closing or consummation. This mandatory waiting period allows borrowers to review the final terms and compare them against the Loan Estimate, ensuring transparency and preventing surprises at the closing table. If certain material changes occur after the initial CD is issued, such as a significant change in the Annual Percentage Rate (APR) or the addition of a prepayment penalty, a new three-day waiting period is triggered. These waiting periods are designed to give consumers adequate time to react to any material changes, though they can sometimes impact the overall transaction timeline.