Buying a home is a lot of things: exciting, daunting, anxiety-inducing. But there’s one thing it’s usually not: easy. That’s particularly true if you need to finance your purchase with a mortgage. Getting a handle on home-loan jargon can feel a lot like learning a new language: Take TRID as an example.
The good news? This mouthful of an acronym is extremely helpful for homebuyers. Let’s take a closer look at what TRID means, and how it can help protect and inform you on your buying journey.
What is TRID?
In real estate lingo, TRID stands for TILA-RESPA Integrated Disclosures. It’s actually a combination of two other acronyms, both related to federal law: TILA is the Truth in Lending Act, which has to do with the fees and expenses involved in a mortgage loan, and RESPA is the Real Estate Settlement Procedures Act, which relates to the time, fees and expenses involved in the purchase.
TRID real estate legislation simplifies TILA and RESPA, consolidating them into one set of rules. That’s helpful since both apply to the homebuying process: TILA outlines disclosures and the documentation your mortgage lender is required to give you informing you about the loan. RESPA governs everything from closing costs to how your money gets held in escrow and when it gets released to the lender. TRID’s combining of all of that information provides you as a buyer, as well as your lender and your real estate agent, a big improvement in clarity about what’s required when.
Since going into effect in 2015, every home loan in the U.S. has been required to follow TRID guidelines. The law is enforced by the Consumer Financial Protection Bureau (CFPB).
‘Know Before You Owe’
As if there aren’t already enough acronyms to keep track of, you might also hear TRID referred to as Know Before You Owe, or KBYO. This actually provides a better description, because the point is to make sure borrowers are well informed and understand what they’re committing to. It’s an effort to thwart predatory lending practices by putting enough information in the consumer’s hands to make an educated decision when buying a home.
TRID disclosures
Under TRID, borrowers must be provided with two key disclosure documents:
The loan estimate
This document gives homebuyers a snapshot of all of the key aspects of their mortgage, including:
- Total loan amount
- Product type (e.g., fixed-rate mortgage vs. adjustable-rate mortgage)
- Interest rate
- Loan term
- How much you’ll pay each month in principal and interest
- Associated mortgage insurance, if applicable
- Explanation of prepayment penalty, if applicable
- Closing costs
If you apply for a mortgage with a few different lenders, you can get a loan estimate from each and compare them to see which works best for you. (Remember, rates change constantly, so if you plan to compare, be sure to get the estimates within the same few days so the rates don’t differ too much to make a useful comparison.) Per TRID rules, a lender has to provide you with this overview within three days of your application. The CFPB offers a sample loan estimate you can check out to get an idea of what yours might look like.
The closing disclosure
Once you choose a mortgage lender but before you close on the loan, TRID requires the lender to issue you a closing disclosure. This document should look similar to your loan estimate, hitting the same main points. The difference is that this is no longer an estimate — it’s what you’re officially agreeing to once the mortgage is finalized.
Again, you can check out the CFPB’s sample closing disclosure to get a better feel for this document, so you know what to look for and where it is on the form. And again, TRID stipulates that you get three business days, before the actual closing date, to review the disclosure. (It’s no wonder that TRID/KBYO is often referred to as the “three-day rule.”)
Go over your closing disclosure carefully during this three-day period to ensure there aren’t any surprises. Make sure what is on the form is what you agreed to. And keep in mind that getting a disclosure does not obligate you to go through with the loan — if you don’t like the terms, you can still walk away.
How does TRID help homebuyers?
TRID is a consumer-protection law, ensuring that homebuyers get important information in an easy-to-digest way. Think of it like a safety net to make sure you’re not getting sucked into a mortgage that you can’t afford, or that isn’t what you expected.
Before TRID was enacted, borrowers would get four disclosures: a truth-in-lending statement, a truth-in-lending disclosure, a good faith estimate and a HUD-1 statement. Now, all that info is consolidated into the loan estimate and the closing disclosure.
Plus, per TRID, lenders cannot charge you an application fee. This allows you to shop around for the best interest rate and loan terms from multiple lenders without too much financial hardship. However, even if they can’t charge you for the application itself, fees for processing, a credit pull and other things may still be reflected, so keep an eye out for those when comparing.
Perhaps most importantly, TRID requires lenders to provide you with both a closing disclosure and three business days to review it. This gives you time to compare it against your loan estimate — the two documents should be very similar. This safeguards you against bait-and-switch lending practices, so you don’t wind up signing on to something different than what you were promised. If your loan estimate and closing disclosure vary notably, bring the discrepancy up with your lender right away.
Other closing requirements
While the TRID-mandated documents provide clarity about your mortgage, they’re not the only key pieces of the closing process. You also need to make sure you don’t have any title problems and fulfill your lender’s requirements, like securing homeowners insurance. Plus you’ll need to arrange payment of your closing costs, usually via a wire transfer or cashier’s check. Your real estate agent can help you make sure you’re on top of all the other requirements needed for closing day.
A quick note: Don’t let the three-day rule fool you into thinking everything will be settled in just three days! The underwriting process and all the other things that go into finalizing the deal take time — altogether, it can take a month or even two months to close on a house.
FAQs
TRID is an acronym that stands for TILA-RESPA Integrated Disclosures. (TILA is the Truth in Lending Act, and RESPA is the Real Estate Settlement Procedures Act.) It’s a federal consumer-protection law that requires lenders to disclose certain types of key information to borrowers.
The TRID rule requires lenders to provide two disclosure documents to lenders: a loan estimate and a closing disclosure. Because each document must be timed to give the borrower three days to look it over, it’s sometimes referred to as the “three-day rule.”
The TRID legislation is a federal consumer-protection law that is meant to protect consumers from predatory or bait-and-switch lending practices. It outlines what information lenders are required to disclose to consumers, and when, so that consumers be as informed as possible and make educated decisions.
