The new TILA-RESPA Integrated Disclosures (TRID) will take effect on October 3, 2015. As this date approaches, you may have heard a few terms and phrases you haven’t heard before. Whether you’ve been through the home purchase process many times before, or you’re preparing to buy your first home, it’s important to familiarize yourself with these terms and to understand what they mean for you, the consumer.
TILA refers to the Truth in Lending Act. This law requires mortgage companies and other lending institutions to disclose all costs and fees associated with a borrower’s transaction. RESPA stands for Real Estate Settlement Procedures Act. This law requires lenders, loan servicers, and brokers to provide borrowers with disclosures regarding the costs associated with real estate settlements. RESPA also prohibits anti-competitive practices that can inflate the costs of real estate transactions, such as kickbacks.
TRID stands for TILA-RESPA Integrated Closing Disclosures. TRID is a new Rule which applies to most residential mortgage transactions, that combines the Good Faith Estimate, the Truth-in-Lending statement, and the HUD-1 into two new forms: the Loan Estimate and the Closing Disclosure. Therefore, TRID is the integration of the TILA and RESPA disclosures.
A Loan Estimate (LE) is a form that the consumer receives within three days of applying for a mortgage. It details everything you need to know about the loan you have applied for, including the estimated interest rate, monthly payment, closing costs, and any other fees. It will also inform you of any special features in the loan, such as a prepayment penalty.
A Closing Disclosure (CD) is a form the consumer receives at least three days before closing on a residential mortgage. This form includes loan terms, projected monthly payments, and what closing costs will be involved. The three-day window allows you to compare these terms and costs to the ones estimated in your LE, and to ask your lender any questions you may have about your loan before closing.
The Creditor in a mortgage transaction is your mortgage lender. This is the financial institution supplying the funds for the loan, and instituting the terms and conditions of the loan.
The Consumer in a mortgage transaction is the borrower, or the person(s) taking out the loan.
Consummation is the date on which the consumer becomes contractually obligated to the creditor on the loan.
Knowing the terminology involved in loan transactions that start after the TRID deadline will help you be better prepared and avoid delays in your loan closing. For more information about TRID, and about what NFM Lending is doing to prepare for TRID, click here. If you are ready to purchase a home, click here to contact one of our licensed mortgage Loan Originators today to get started!
Are you looking to buy a home but are stumped with some of the terms that Real Estate Agents, Loan Originators, or even websites say? Here are 25 commonly used mortgage terms and definitions to help you through the home buying and loan process:
Adjustable Rate Mortgage (ARM) – An ARM, also known as a Variable Rate Mortgage, is a loan with an interest rate that is periodically adjusted based on a pre-determined index.
Annual Percentage Rate (APR) – The APR is the cost of a mortgage stated as a yearly percentage rate. Since the APR includes points and other credit costs, it is typically higher than the advertised note rate. An APR allows home buyers to compare different mortgages based on loans’ annual costs.
Appraisal – An appraisal is a written analysis, prepared by a qualified appraiser, of a property’s estimated value.
Buy-down – A buy-down is when a lender or builder subsidizes a loan by lowering the interest rate during the initial years of a loan. Payments increase when the subsidy expires.
Closing Costs – The fees charged for services performed, including the home appraisal, loan origination, flood certificate, the title survey, etc.
Debt-to-Income Ratio – This is the ratio that results when a buyer’s monthly payment obligation on long-term debts is divided by his or her gross monthly income.
Down Payment – The part of a property’s purchase price paid by the borrower (i.e., not financed by the mortgage). Down payments can be anywhere from 3-20 percent of the purchase price.
Earnest Money – Earnest money is paid by the buyer to the seller to bind a transaction or assure payment.
Escrow – Escrow is the holding of funds or documents by a third party prior to closing; the funds are usually for payment of taxes and insurance on property.
Fixed-Rate Mortgage – A fixed-rate mortgage has interest rates that remain constant during the repayment period.
Home Equity – Equity is created when the value of your home increases and/or you reduce the amount you owe through your loan payments.
HUD-1 Settlement Statement – Standard, government regulated settlement statement that itemizes the costs of transaction when purchasing a home. Commonly referred to as “HUDs” or “HUD-1s.”
Lock-in – A lock-in is a written agreement guaranteeing a borrower a specific interest rate as long as the loan closes and funds before a certain date. A lock-in usually specifies the number of points paid at closing.
Negative Amortization – On negative amortization loans, your monthly payments may not cover all of the interest due. When that happens, the unpaid interest is added to your mortgage balance so that you would owe more on your mortgage than you originally borrowed.
Oigination Fee – Fee(s) charged by the lender to the borrower to prepare loan documents, conduct credit checks, inspect and sometimes appraise property. Origination fees are usually charged as a percentage of the loan.
PITI – A borrower’s monthly mortgage payment: Principle, Interest, Taxes, and Insurance.
Points – Fee assessed by the lender, usually to permanently buy a below-market rate. One point equals 1 percent of the loan amount. For example, three points on a $100,000 mortgage is $3,000.
Pre-Paids – Expenses such as interest and escrow reserves.
Prepayment Penalties – Fees that the borrower will incur if the mortgage is fully paid during a “prepayment penalty period”.
Private Mortgage Insurance (PMI) – PMI, which protects lenders against loss if a borrower defaults, is typically required for borrowers making a down payment less than 20 percent. PMI typically requires an initial premium payment of 1-5 percent and also has a monthly fee.
Real Estate Settlement Procedures Act (RESPA) – RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at a settlement. The law requires lenders to furnish the information after application only.
Settlement/Closing – Closing is the meeting between buyer, seller, and closing officer (a lawyer or title/escrow company representative depending on the state) where the property and funds legally change hands by signing all relevant documents.
Settlement Costs – Combination of hard closing costs and pre-paids. Settlement Costs include the origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, and all other costs.
Underwriting – Underwriting is the process during which the decision is made whether to approve a loans rates and terms based on the borrowers’ credit, employment, assets, and other factors.
Yield Spread Premium (YSP) – A rebate by a lender or investor to a local Loan Officer for closing a loan on a certain product.
Should you have any questions about these mortgage terms or any other that you may have encountered, please leave a comment or contact us!