Understanding Your Closing Disclosure (The Ultimate Guide)

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you got a house; You went under contract; And you’re spared the home inspection, appraisal and loan underwriting. Congratulations, the end is in sight! You are on your way to becoming a landlord.

If you’ve chosen a traditional loan type, the closing disclosure (CD) is just one of many forms you’ll receive during the home-buying process, and it’s among the stack of papers you’ll sign on that fateful day of closing. The CD is the last document that you will receive before the possession of the house. Even though they are designed to be a simple overview of your loan product, these five pages of numbers and legalese can be confusing, especially if you are a first-time home buyer. Let’s figure out what it is, why it’s important, and how to check for any errors.

What is closing disclosure?

The closing disclosure is a form issued by your lender a few days before you close on your home. The five-page form includes a final roundup of your loan transaction details, such as:

• Principal Amount (aka Loan Amount)
• mortgage insurance
• property taxes
• interest rate, or annual percentage rate (APR)
• fees and closing costs, such as origination fees
• prepayment penalty, if applicable
• Escrow Account Information
• monthly payment amount
• Total finance charges during the tenure of the loan.

The first page of the closing disclosure provides a good summary of your loan terms, and is a good starting point. The other four pages provide important additional information. This can help you determine whether the loan contract details—such as late fees or a demand feature that allows the lender to demand full repayment—are up to your expectations.

You can compare the CD against your initial loan estimate and contact your lender to settle any errors or unexpected changes before closing.

In addition to this other loan information, your closing disclosure will likely specify the services for which the borrower purchased and received your services. was not, In addition to homeowner’s insurance premiums, things like title insurance are covered under services that the borrower purchased—even if you used title insurance provided by your lender or title company. Many borrowers don’t realize that they can shop around for these services.

Why is closing disclosure important?

This is your final review before signing the loan and committing to it. You want to make sure you fully understand your closing costs and monthly payments—and whether they’re subject to change, such as in the case of an adjustable-rate mortgage—before you commit legally and financially. be bound by debt. Once you sign the closing documents, you are bound by the terms and conditions until you close the loan, either by refinancing, paying it off in full, or selling the property.

Homes cost a lot, so this information isn’t just small potatoes. Make sure you have taken the necessary time to comb through the details of the CD.

three day rule

The Truth in Lending Act was put in place to protect borrowers by giving them as much information as possible when lending. Accordingly, your lender is legally required to provide you with a closing disclosure at least three business days before closing so that you have time to notice unexpected changes or errors. (Before the three-day rule was introduced in 2015, these final loan terms were given at the time of closing, which could result in rushed decisions or overlooked mistakes.)

According to the Truth in Lending Act, the three-day rule can technically be waived if “the extension of credit is needed to meet a personal financial emergency.” However, what is considered a “personal financial emergency” is relatively unclear. This usually means that there is some time limit (less than three days) within which you must close the house. If there is a possibility of losing the home without closing early, you can waive the three-day rule. An example that the Truth in Lending Act provides is the “imminent sale of a consumer’s home on foreclosure during a three-day period”.

To waive this right, you will need to give the lender a dated statement describing the emergency, specifically waiving the waiting period, and signed by everyone involved. According to specific instructions, this statement must be handwritten.

It’s worth noting that this rule is for your safety, so there’s little reason to waive this waiting period, unless it’s a true emergency, like in the foreclosure example. Although you may be eager to close on your home, you should take these three days to deal with the closing disclosure and make sure everything is correct. If you are unsure about anything on the closing disclosure, contact your lender and ask any unresolved questions you may have until you are 100% clear.

Does CD mean I am clear to discontinue?

After going under contract on a home, an underwriter will review all of your qualifications — such as your financial information, credit history and employment verification — as well as order an appraisal and title check of the property. If all goes well, the underwriter gives final approval to your loan and you are “clear to close”.

The closing disclosure includes the final numbers that the loan approval is based on, so receiving the closing disclosure means you are in fact clear to close.

Can closing costs change after a CD?

Technically, things outside the lender’s control can change even after receiving closing disclosure, such as the cost of homeowner’s insurance for escrow. However, the lender fees cannot be changed after the closing disclosure is issued.

If the loan details are changed due to a “change in circumstances,” such as a change in your credit score or down payment amount, the lender must provide a new CD. A further three-day window is only necessary if:

• The loan product has changed, such as changing from a fixed rate to an adjustable rate or vice versa.
• APR increases by more than one-eighth of a percentage point. (This does not apply for deficiencies.)
• A prepayment penalty is added. This is a fee a lender may charge for refinancing, selling the home, or paying off the mortgage before a specified amount of time on the loan.

Explanation of form elements

Here’s a brief description of what’s included in each section on the closing disclosure. (If you’d like more information and guidance on reviewing this document, we recommend checking out the Interactive Explainer from the Consumer Financial Protection Bureau.)

• Loan Terms: This section includes hard numbers like your loan amount, interest rate, monthly principal and interest, any prepayment penalties, and whether or not there is a balloon payment.
• Estimated Payout: This is where you’ll find a breakdown of each payment, including principal, interest, what your payment would look like with and without PMI, estimated escrow, and estimated total monthly payments.
• Closing costs: The total amount you will bring with you to closing is more fully detailed on the following pages. “Cash to Close” takes into account your down payment, earnest money and seller credit as well as all loan costs.
• Loan Cost: Summary of any lender fees, loan points, cost of appraisal and title search, and any insurance or tax amounts as prepaid.
• Transaction Summary: It compares the transaction costs of the borrower and the seller against each other, which includes the total cost payable by the borrower and the total amount payable by the seller.
• Loan Disclosure: Any and all terms between you and your lender, including penalties for late payment, whether partial payments are permitted, and details of your escrow account.
• Loan Calculation: A series of calculations that explain what your APR is and how much interest you’ll pay over the life of the loan.

How to Check Your Closing Disclosure

First and foremost, compare your closing disclosure to your original loan estimate and check for any unanticipated changes. The two documents won’t be exactly the same, but there shouldn’t be any obvious difference. Your real estate agent will also receive a copy of the closing disclosure, and they can help you check it for accuracy.

Next, check for any simple errors, such as spelling mistakes in your name. These issues are rare, but will need to be fixed before closing.

Finally, consider whether you are really ready to make these monthly payments and commit to the loan as detailed in the closing disclosure. Hopefully, you have already done your due diligence while shopping for the loan, so this shouldn’t be a problem. If you find out that you don’t want to buy a home that late in the process, you can technically walk away – but you’ll lose your hard earned money and cause a lot of problems for everyone involved.

If there is an error in the closing disclosure, contact your lender as soon as possible to work through the changes. The document will need to be revised and reissued, which may incur another three-day window and push back your closing date. If so, your purchase agreement will need to be revised as well.

Why is the Closing Disclosure different from my Loan Estimate?

You will get a loan estimate after you have gone under the contract and officially applied for the mortgage. (Note that this is different from the pre-approval letter, which is given before you formally apply for a loan.) The three-page loan estimate looks similar to the five-page closing disclosure, and it includes all the important information you need to know about the loan. information is included. Monthly payments, interest rates and estimated closing costs.

A loan estimate is issued before the loan is underwritten and approved, so the key word here is “estimate.” These numbers can change during underwriting if there is a problem getting you approved for the initially provided rates and amounts. Additionally, things such as insurance premiums, appraisal costs and prepaid interest amounts can (and will likely change) before the final disclosure is issued.

When will I get my closing disclosure?

Your lender will issue a closing disclosure at least three business days prior to closing. This five-page document will tell you with reasonable accuracy what your monthly payment will be. It also accounts for everything you’re paying, what the seller is paying, and how much money you’ll need to get you to closing.

Review these dollar amounts and prepare any additional money you need to bring to the table. Take the three days allotted to thoroughly review the document; You should compare this with your initial loan estimate and inform your lender if there is any error. Once you’ve done that, you’re off to the races – all that’s left is the finish time!