What Is TRID in Real Estate and How Does It Work?

TRID, or TILA-RESPA Integrated Disclosure, is a set of federal regulations implemented by the Consumer Financial Protection Bureau (CFPB). These rules combine and streamline disclosures previously required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Known as “Know Before You Owe,” TRID aims to promote transparency in mortgage loan transactions. It helps consumers understand loan costs and terms, enabling more informed financing decisions.

The Core Disclosures

The TRID rule introduced two primary documents: the Loan Estimate (LE) and the Closing Disclosure (CD). These forms replaced earlier disclosures, consolidating essential information to simplify complex financial details.

The Loan Estimate

The Loan Estimate is an initial, three-page disclosure provided early in the mortgage application process. Lenders issue it to give prospective borrowers a clear snapshot of the loan’s estimated terms and costs. It details the estimated interest rate, projected monthly payments, and an itemized breakdown of estimated loan and closing costs. It also provides the “Cash to Close” amount. This document helps consumers compare different loan offers.

The Closing Disclosure

The Closing Disclosure is the final statement of loan terms and all associated closing costs. This five-page document provides a comprehensive breakdown of every charge for both the borrower and, where applicable, the seller. It outlines the actual interest rate, final monthly payments, and a detailed list of all transaction costs. Its primary role is to allow consumers to compare final terms and costs against the initial Loan Estimate, ensuring consistency.

Key Consumer Protections

TRID includes mechanisms to protect consumers from unexpected cost increases before closing. A central component involves “tolerance rules,” which limit how much certain closing costs can increase between the Loan Estimate and the Closing Disclosure. These rules are categorized into three levels.

Zero Tolerance

The “Zero Tolerance” category applies to costs that cannot increase from the amount disclosed on the Loan Estimate. These include fees paid directly to the lender, such as origination charges and mortgage broker fees. Transfer taxes and certain third-party services where the lender does not permit the borrower to shop for providers also fall under zero tolerance. If these costs exceed the initial estimate, the lender absorbs the difference.

10% Tolerance

The “10% Tolerance” category allows for a cumulative increase of up to 10% for certain groups of costs. Examples include recording fees and charges for third-party services where the lender permits the borrower to shop but the borrower chooses a provider from the lender’s list. If these fees increase by more than 10% in aggregate, the lender must cover the excess.

No Tolerance

“No Tolerance” applies to costs that can change without limitation, provided the original estimate was made in good faith. These fees are often outside the lender’s direct control or are chosen by the borrower without using a lender’s recommended list. Examples include prepaid interest, property insurance premiums, and amounts deposited into an escrow account. Fees for services the borrower shops for independently also fall into this category.

TRID also supports the “right to shop” for certain services, allowing consumers to seek competitive pricing for items like title insurance and appraisals. The disclosures facilitate this process, ensuring consumers have the information needed to compare providers. This promotes transparency and consistency in cost disclosures.

Applicability of TRID Rules

TRID rules apply broadly to most closed-end consumer credit transactions secured by real property. This includes common mortgage types for personal, family, or household purposes, such as purchase money mortgages and refinance loans (rate-and-term and cash-out).

Construction loans that convert to permanent financing are generally subject to TRID if they are closed-end consumer credit transactions secured by real property. Loans secured by vacant land or properties of 25 acres or more are also included if for a consumer purpose. The rule also extends to credit for certain trusts established for tax or estate planning.

Exemptions

Specific transactions are exempt from TRID. Home Equity Lines of Credit (HELOCs) and reverse mortgages are not covered, though they have their own federal disclosure regulations. Loans for mobile homes or other non-permanently affixed dwellings are also exempt. Additionally, certain business or agricultural loans fall outside TRID’s scope, as do loans originated by creditors who make five or fewer mortgages in a calendar year.

Understanding the Disclosure Timeline

The timing of TRID disclosures provides consumers with adequate time for review. Lenders must provide the Loan Estimate within three business days of receiving a loan application. An application is defined as the submission of six pieces of information: the consumer’s name, income, Social Security number, the property address, an estimated property value, and the mortgage loan amount sought.

For the Loan Estimate, a “business day” is any day the creditor’s offices are open to the public for substantially all business functions. Consumers are presumed to receive the disclosure three business days after it is mailed.

The Closing Disclosure must be provided at least three business days before the scheduled closing date. This mandatory waiting period gives borrowers sufficient time to review final terms and costs without pressure. For the Closing Disclosure, “business day” includes all calendar days except Sundays and federal public holidays, ensuring a uniform waiting period.

“Valid change of circumstances” can trigger a new three-business-day waiting period for a revised Loan Estimate or Closing Disclosure. These include changes in loan terms, such as an inaccurate annual percentage rate or a new prepayment penalty. Other changes might stem from events beyond anyone’s control, new information about the borrower or property, or borrower-requested changes. These re-disclosures ensure consumers remain informed and can review significant changes before committing to the loan.