A Closing Disclosure is a document that finalizes the terms and costs of your home loan.
What is a Closing Disclosure?
A Closing Disclosure is a five-page form that the law requires your lender provides to you three days before your closing date. It breaks down the final terms and costs of your home loan.
In August 2015, the Closing Disclosure replaced the HUD-1 Settlement Statement..
Why is the Closing Disclosure important?
Three days after your loan application, you should have received your Loan Estimate. This document outlined the approximate fees you would pay as part of your mortgage, such as your monthly payment and closing costs.
Your Closing Disclosure finalizes the approximate costs found on your Loan Estimate. As a result, before your closing day, you should compare the Closing Disclosure side-by-side with your Loan Estimate. Most of the costs and fees should be very close. However, there are a few sections where the amounts may have changed, such as prepaid interest.
If there are any errors on your Closing Disclosure, you will need to notify the lender and title company as soon as possible. If the document needs to be reissued, your closing date will be postponed.
What does a Closing Disclosure form contain?
The first section contains the loan terms. The loan terms include the loan amount, the interest rate, projected monthly payments, and any applicable prepayment penalty or balloon payment.
Next is a breakdown of your anticipated monthly mortgage payment, including principal and interest, mortgage insurance, and your estimated escrow payment, which may increase over time. Additionally, there is an area for property taxes, homeowner’s insurance, and other assessments, such as homeowner’s association dues, if applicable.
Costs at Closing
The next section contains your closing costs. You will see a breakdown of the loan origination charges, services you did not shop for, and services you did shop for. At the bottom of this section, you will see the total loan costs that the borrower pays.
These other costs contain taxes, fees, prepaid costs, initial escrow payments at closing, as well as any additional fees, such as a home warranty.
Additionally, this section of the form contains your loan’s total closing costs.
Calculating Cash to Close
This table will help you see the amounts from your Loan Estimate and the final changes on your Closing Disclosure. Furthermore, the final “Cash to Close” number is what you will have to pay at closing via a cashier’s check or wire transfer.
Summaries of Transactions
This table will show you the borrower’s transactions as well as the seller’s transactions.
The boxes that are checked here apply to your loan. For instance, this portion of the form will tell you if your mortgage is assumable and when your loan is charged a late payment fee.
This chart is an itemization of your total payments, finance charge, amount financed, annual percentage rate (APR), and total interest percentage (TIP).
This segment contains vital information about the details of your loan and options for refinancing and tax deductions.
The contact information for your lender, mortgage broker, real estate brokers for the buyer and seller, as well as the settlement agent are recorded here.
By signing the final page of the Closing Disclosure, you declare that you have received the form. This does not mean that you have accepted the loan.