When it comes to new lending trends in real estate, it is very important to take into account the laws which govern traditional mortgages and similar loans.
What is TRID?
TRID is an acronym of four mortgage acronyms which is a result of the Dodd-Frank Act. TRID stands for the following;
- Truth in Lending Act (TILA)
- Real Estate Settlement Procedures Act (RESPA)
Essentially, TRID is a combination of TILA and RESPA and the result is primarily designed to eliminate the one day notice that often came at the end of the day right before closing. This often meant that the buyer had very little time to read and figure out what was on the page. The Dodd-Frank Act hopes to avoid the conditions that caused the housing collapse and mortgage crisis of 2008 with TRID by helping to better inform buyers about the costs and risks of purchasing a home.
TRID now requires a three business day notice instead of one day which allows buyers to have the time to fully read the contract. However, there are exceptions to this rule in that it can be voluntarily waved although that is not recommended. Plus, it only applies to lenders who only make 5 or more loans each year and it does not apply to reverse mortgages, HELOCs, and mobile homes or residences not affixed to real property.
New Lending Trends in Real Estate Market
For the most part, TRID affects investors who flip properties as traditionally such sales happen very quickly. The tricky part is that any change to the loan terms re-starts the three business day clock which may throw off the timing of the deal.
Amend/Extend: If the closing should become delayed due to TRID, one trend is to write up an Amend/Extend to change the date of the closing. While this might take a few days, it tends to keep the deal in place. During this time, it is important that the new buyer does not occupy the home until the deal is closed.
Looser Credit: There is a new lending program from Fannie Mae and Freddie Mac that requires a down payment of just 3.5%. While there is some risk to this type of loan, many borrowers are jumping on the low rates thanks to the recent reduction of mortgage insurance costs. This means that first time buyers are now more likely to qualify for a loan.
Smaller Homes: There is a big run on properties that are about 10% smaller than a decade or so ago. This means that buyers are looking to shrink their carbon footprint and buy more energy efficient homes for their needs.
Overall, the housing market has arguably recovered from the crisis in 2008. However, with new regulations in place such as TRID, it does make it a little harder for investors to flip homes quickly. For the average consumer, smaller homes and lower down payments is the current trend that is dominating the real estate market at least for the time being.
To learn more about TRID contact our highly experienced real estate professionals today!