“Know Before You Owe” Will Likely Cost Home Buyers More Money

By now, presumably everyone in the residential real estate industry is gearing up for the implementation of TILA-RESPA Integrated Disclosure (“TRID”) and its new disclosure forms – the Loan Estimate and the Closing Disclosure.  The newly adopted bureaucratic regimen is set to take effect October 3 and most in the industry believe the new TRID rules will meet the overall goals of providing home buyers with clearer “know before you owe” information, and do so in a more timely fashion than with current disclosures.

But be forewarned the new requirements may prove costly to borrowers – in both time and money. This is mainly due to the requirement for the Closing Disclosure to be provided to borrowers no later than three business days prior to closing.  The new rules no longer allow for last-minute changes to the settlement statement just prior to and at the closing table.  Rather, any adjustment to the Closing Disclosure would trigger a new three-day waiting period before closing can occur.  The practical effect of this and other TRID rules is that closing dates will be delayed until lenders adjust to the new rules.

Due to these inevitable delays, many believe that the typical 30-day purchase and sale contracts and 30-day rate locks from lenders should be replaced with, at least temporarily, 45-day contracts and 45-day rate locks.  Insofar as purchase contracts are concerned, real estate practitioners on the buy-side should negotiate a closing date that is 45 days from the contract date.  They should also schedule the closing with the title agent or attorney to occur at least 10 days prior to the drop-dead closing date.

As it pertains to rate lock extensions, the answer is not as straightforward.  The standard time provided by Lenders in order to lock in their interest rate on a mortgage loan is 30 days.  In order to extend the rate lock beyond the standard 30-day window, borrowers will be charged a premium.  Some borrowers will resist the urge to pay extra for such protection.  However, in the context of a rising interest rate environment (which seems likely given the Federal Reserve’s recent position on interest rates), it seems prudent to advise buyers to pay a bit more for a 45-day rate lock.  The premium charged for an extended rate lock will ultimately be cheaper than the alternative of paying a higher interest rate over the life of the loan.

More will be known after next week when TRID goes into effect, but be prepared for extended purchase and sale contracts and changes in rate lock timing.

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