The Closing Disclosure is the last document you will receive before your home loan closes. Carefully review this detailed five page page to make sure all numbers look correct before closing day.
What is a closing disclosure?
Definition of final disclosure
The final disclosure is a legally required five-page statement of the final terms of your mortgage and closing costs. It contains details about your loan terms, monthly payments, fees, and closing costs.
Why closing disclosure matters
The lender must provide you with the final details of your mortgage when declaring closing at least three business days before closing. This gives you time to compare the final terms and costs with the information that was previously provided to you on your loan quote, the three-page document you received when obtaining the mortgage offer.
You need to compare the closing disclosure with the loan estimate to see if anything has changed. If something is unexpected or incorrect, you have time to ask the lender before closing.
What’s in the final disclosure
- Loan conditions – Check the numbers and note if the following amounts may increase after closing: the loan amount; interest rate; monthly payment including principal and interest; early repayment penalty, if only; and the lump sum payment, if applicable.
- Scheduled payments – These are in addition to your monthly mortgage payment and include principal, interest and mortgage insurance (if applicable), as well as the estimate escrow and taxes, insurance and appraisals, both of which can increase over time.
- Closing costs – This section displays your initial charges, sometimes referred to as “settlement charges”. It includes the cost of the loan, the lender’s credits, and the amount you will need to pay on closing.
- Loan fees – This section includes origination fees such as administration fees, subscription fees and the points you have to pay. Items payable by seller will be noted. Other loan costs are classified as “services the borrower has not purchased” – including credit report and appraisal – and those the borrower has purchased, such as settlement agent fees. and title search.
- Other costs – These include registration fees, transfer duties, mortgage insurance and insurance premiums due on signing.
- Calculate liquidity to close – This table details your closing costs, including any down payments you have already paid, credits, and anything that has changed since your loan estimate was provided.
- Summaries of operations – This gives a detailed overview of your costs, including the property price and closing costs and seller’s fees.
- Loan Disclosures – Here you will see legal language describing the important features of your loan, such as assumption, demand function, negative amortization, and escrow.
- Loan Calculations – This disclosure shows the total amount you agree to pay over the life of the loan, including interest charges.
- Other disclosures – This includes more details such as appraisal, missed payments and other aspects of your loan.
- Contact information – This includes details of how to reach all parties involved in your loan.
- Confirm receipt – Signing this page on closing indicates that you have received it.
How to verify your closing statement
With your most recent loan estimate handy, go through each line of the closing statement and compare the two documents.
To get started, make sure your name is spelled correctly. Verify your address. It is important to ensure that the description and loan amount match the loan estimate.
Make sure the loan type, interest rate, monthly payment, and other key terms match your expectations. Do you know the fees and have you changed any of them? Do you have an escrow account and understand how it works?
Read each item on the closing statement and note if there have been any changes since you got the loan estimate. If you’re not sure, ask your real estate agent or lawyer, if you have one, to help you review it and contact your lender.
Example of closing statement
For a useful illustration of what your fence disclosure will look like, take a look at this example of closing statement of the Consumer Financial Protection Bureau (CFPB). There is an interactive checklist on the right side of the document. If you’re not sure what to check, use the prompts in each section of the document to guide you.
What can and cannot change about the closing disclosure
When checking the closing disclosure, you should be aware that some mortgage costs are allowed to change, while others cannot. One thing’s for sure: Lenders can’t deliberately underestimate your costs and then raise prices at the close.
In general, if any of the following items have been changed from your loan estimate or do not seem familiar to you, contact your lender and ask for an explanation.
- Loan Information – Most of the time, this section should match your loan estimate. If not, ask your lender why.
- Amount of the loan – Note that the loan amount may change, for example, if your closing costs have been incorporated.
- Interest rate – If there is a change from the loan estimate and you blocked your rate, ask your lender for clarification.
- Estimated Total Monthly Payment – That may change; be sure to ask your lender for an explanation, if applicable.
- Closing costs / cash to close – These may also change.
- Services that the borrower did not purchase – Make sure there are no new services that were not on your loan estimate.
- Service borrower shopped for – Make sure there are no new services here. If there are any, ask your lender for an explanation of how they were chosen and why they were included.
Note that some closing costs cannot increase, such as fees paid to the lender or mortgage broker, or fees for required services that you did not purchase separately, or that you paid from an affiliate of your lender or mortgage broker. Transfer taxes may also not increase.
However, if there is a “change in circumstances” that requires a new loan estimate, these costs can change by any amount. A change in circumstances can occur when you decide to get a different type of loan, put in a different amount, your home is not appraised at expected value, your credit report changes, or your income documents. do not meet your expectations.
Other closing costs may increase without limit, including prepaid interest, property insurance premiums, initial escrow account deposits, and fees for certain third-party services. These costs are not controlled by your lender.
There is a third category of closing costs which can increase by up to 10 percent. These include registration fees and some third party service providers. If circumstances change, these costs could increase by more than 10%.
What to do if there is an error on the closing disclosure
If anything about the closing disclosure appears to be incorrect, you should notify the loan officer and the title company to correct it prior to closing. The document may need to be redone – which could delay the closing date – so it’s important to contact them immediately.
What is the three day waiting period?
The “Know before you owe” mortgage rule, also known as TRID (TILA-RESPA Integrated Disclosure Rule), came into effect in 2015. It requires you to receive your closing disclosure three business days before closing. This was intended to protect borrowers by avoiding surprises at closing.
By giving yourself three business days to review your closing disclosure, you will have time to check all the numbers and raise any questions you may have before you sit down at the closing table. Take this time to review all of your mortgage terms and speak to your lawyer, housing counselor or loan officer if you have any questions.
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