closing disclosure

Reviewing Your Closing Disclosure: It’s Easier Than You Think

You have the loan approval and all you need to is close on the property.  But before you can proceed, you should wait for the Closing Disclosure.

The Closing Disclosure or CD is a notice which details all costs related to your mortgage. Your lender should send it to you for review at least three days before the closing date.

As one of the most important closing documents, you should take the time to review your Closing Disclosure.

What is the Closing Disclosure?

The Closing Disclosure is the five-page document from your mortgage lender. This is the final version of the Loan Estimate (aka good faith estimate) you received when you first applied for the loan.

Your Closing Disclosure should detail the cost of your mortgage and the terms of the loan. That’s why you have to check it thoroughly.

By the way, if you financed your home before August 2015, you may be more familiar with another type of document known as the HUD-1 settlement statement. The Consumer Financial Protection Bureau actually replaced HUD-1 with the Closing Disclosure.

Originally, the HUD-1 Settlement was only given on the closing day. Hence, buyers did not have sufficient time to review everything in the Closing Disclosure.

Some loans like the reverse mortgage still use the HUD-1 Settlement Statement but for a regular mortgage, you should receive the Closing Disclosure.

Is Closing Disclosure Important?

Of course!

The Closing Disclosure will outline the terms of your mortgage loan which usually lasts from 15 to 30 years. This document will summarize your obligation to your mortgage lender for the entire life of your loan.

This Closing Disclosure is closely tied to your Loan Estimate. In fact, Page 3 of the Closing Disclosure includes a table that shows the costs in the Loan Estimate with that of the Final Fees. By showing the fees side by side, you’ll have an easier time comparing how the costs changed.

What Is In The Closing Disclosure?

Your Closing Disclosure will dictate the terms of your mortgage in the next decades. So, it’s crucial to focus on this document. Here’s a quick summary of what each page contains.

Page 1

What’s on this page?

  • Closing Information – the closing date, settlement agent, property address and sales price
  • Transaction Information – names of the borrower (who is also the buyer), seller, and lender
  • Loan Information – the loan product, loan type, and term
  • Loan Term – loan amount, interest rate, monthly amortization for both the principal and interest, prepayment penalty
  • Projected payments – estimated monthly payments including mortgage insurance and estimated escrow and estimated taxes, insurance and assessments
  • Costs at closing – total closing costs and total cash you need at closing

Focus extra attention on:

  • Your personal details including the spelling of your name
  • Your loan amount – the amount you need to borrow should be the purchase price less any down payment you made. If you rolled in the closing costs, your lender should add those costs to your loan amount. But if you paid for the closing costs separately, your loan amount should be the total purchase price less any down payment.
  • Interest rate – If you paid to lock in your interest rate, your final rate should be the same as the interest rate on the Loan Estimate you received.
  • Can this amount increase after closing? Your Closing Disclosure should say NO if you applied for a fixed-rate mortgage. For first time home buyers, it’s better to stick to a fixed-rate mortgage.
  • Cash to Close – You need to put money on the table on the closing date. Since you have to do either a wire transfer or get a certified check from your bank, you should know how much money to bring. This amount should include your down payment and closing costs you decided to pay outright. If you financed the closing costs as part of your mortgage, you only need enough funds to cover the down payment.
  • Monthly payments breakdown which should include your principal and interest payment, applicable mortgage insurance, and estimated escrow.

Good to Know

  •  If you made a small down payment and rolled in the closing costs as part of your loan, the loan amount may be higher than the property’s purchase.
  • If you put down an earnest money deposit, you should deduct this amount to the down payment or to any closing costs you agreed to pay for.
  • Escrow payments due to your lender are different from the escrow account you opened for your earnest money deposit. At closing, your lender will open an escrow account where you make monthly payments that will cover your annual property taxes and mortgage insurance. The escrow payment may also include your homeowner’s insurance.

Page 2

What’s on this page?

  • Loan costs – fees associated with the loan which is divided into three categories origination charges, services you shopped for (title search, title insurance) and services you did not shop for (tax monitoring fees, credit report fees)
  • Other costs – all other costs to close including homeowner’s insurance, property taxes, transfer and recording fees

Focus extra attention on:

  • Other costs  – this should include fees that you would still be liable for even if you are a cash buyer.
  • All charges to make sure that fees are charged only once and that you are not billed for the seller’s past due accounts. These costs should also match the items on Page 2 of your Loan Estimate.

Page 3

What’s on this page?

  • Cash to Close – computation of the cash you need at closing and a comparison between the Loan Estimate and the Final Fees listed in the Closing Disclosure
  • Summaries of Transaction – list of borrower’s transaction and seller’s transaction

Focus extra attention on:

  • Cash to close which should be equal to the amount listed in Page 1
  • Items in the borrower’s transaction which should not include an expense you have already paid or was charged to the seller

Page 4

What’s on this page?

  • Loan disclosure – this section will include more details about your loan such as the assumption of the loan if you sell the property, late payments, and partial payments.

Focus extra attention on:

  • Late payment details to know if there is a grace period, how long it is and how much the penalty for late payment will be
  • Partial payment policy which details if the lender will accept payments that do not cover the full monthly amortization
  • Escrow account details which should indicate if you have to make escrow payments and what fees are covered

Page 5

What’s on this page?

  • Loan Calculation – this section shows how much you would be paying for the entire loan, finance charges, and amount financed.
  • Other Disclosures – this includes appraisal information, contact details, liabilities after foreclosure, refinancing, and tax deductions.
  • Contact Information – your Closing Disclosure should include the contact details of the lender, mortgage broker, real estate brokers of both the buyer and the seller and the settlement agent. The Closing Disclosure form should have their address, phone number, and e-mail.
  • Confirmation receipt – the last section in the Closing Disclosure is the section where you have to sign. Don’t worry about that right now since you can sign later.

Focus extra attention on:

  • Contact information of all parties involved. You may be surprised how often you’d need to get in touch with some parties after closing.

Is There An Easier Way To Check My Closing Disclosure? 

There is!

Before you start checking, compare the numbers to your Loan Estimate. Although there are differences between the two documents, the terms and numbers should be reasonably close. These changes should be due to the time that passed between the date you applied and your closing date. Your mortgage lender should also send a copy of your Closing Disclosure to your agent.

The Consumer Financial Protection Bureau has a Closing Disclosure Explainer that will walk you through every section of the document. Take the time to visit the website and go through each section. The sample document on the website also contains a Closing Disclosure sample that could make it easier for you to be familiar with each section.

Beware Of Closing Disclosure Rules

When you receive the Closing Disclosure, you have three business days to review the document. Business days refer to all days of the week except public holidays and Sundays. Some websites cite a 72-hour waiting period, but the law doesn’t require the actual hours, just days.

The review period should provide you with enough time to spot mistakes in closing costs and other fees that could affect your mortgage.

So, how do you count the three-day waiting period?

If you hand-deliver or sent the disclosure through a courier who obtained a signed receipt on a Monday, the earliest closing date is on Thursday of the same week. However, if the company’s courier doesn’t obtain a signed receipt, they should send out the disclosure at least a week before the closing date. This means that if the closing date is on a Monday, the lender should have mailed the disclosure on the preceding Monday.

Take note that your lender doesn’t necessarily have to mail the Closing Disclosure. Electronic delivery will suffice as long as it complies with the Uniform Electronic Transaction Act or E-SIGN Act requirements. This means that you should have consented to electronic delivery.

Changing The Closing Disclosure Can Push Back The Closing Day

During the review period, there can be changes in the Closing Disclosure to address spelling corrections or to adjust fees for prorated tax payments and agent commissions. However, there are cases where the lender may have to issue a new Closing Disclosure. And a new Closing Disclosure could trigger the 3-day requirement.

Here are the three things which could reset the 3-day Closing Disclosure rule:

  • Adding a prepayment penalty
  • Change in loan product such as changing from an interest-only mortgage to a fixed-rate home loan or an adjustable-rate loan
  • INCREASE in annual percentage rate (APR) of more than 1/8 percentage point (0.0125%) for a fixed-rate loan and ¼ percentage point (0.25%) for an adjustable-rate mortgage

Among these three, the APR has the highest impact on the cost of your loan. Even if the interest of the loan is just a few points higher, there could be a difference worth thousands of dollars over the life of your loan.

Sometimes, there’s a valid reason for the change in interest rates and the higher rate may apply. But it’s your right as the borrower to question a significant increase in the APR.

Take note that only an increase in APR can trigger a new 3-day rule. If the APR decreases, it wouldn’t require the issuance of a new Closing Disclosure.  

Can I Waive The 3 Day Waiting Period?

Truth in Lending Act – Real Estate Settlement Procedures Act (TILA-RESPA) Integrated Disclosure Rule allows borrowers who met a certain criterion to waive the three-day waiting period. However, lenders are NOT allowed to provide customers with a pre-printed waiver form. This practice is highly discouraged and should only be done if necessary.

Needless to say, you can only request a waiver if:

  • The borrower already received the Closing Disclosure form.
  • There is a bona fide personal financial emergency that needs to be addressed within the three-day waiting period.
  • The borrower can provide a signed statement explaining your financial emergency and requesting the waiver of the three-day waiting period.

After meeting all these requirements, you have to convince your lender to approve your request. Some lenders may disapprove your request since they will be exposed to legal risk if something goes wrong with the mortgage. Personal financial emergencies may include the possibility of losing your home or medical emergencies.

What If There Are Errors In My Closing Disclosure?

If you spot mistakes in your closing disclosure, take note of all those things and let your agent and/or mortgage lender know right away. By law, you have three days to review the disclosure.

During the review period, it’s your right to ask questions if there’s something you don’t understand.  Don’t hesitate to dispute charges that should not be there. Loan officers can correct these errors quickly but if you don’t say anything within the review period, those fees will be added to your loan.

When there’s something fishy about the document, talk to your agent. Addressing serious errors in the Closing Disclosure is a valid reason for delaying the closing date for a few days. 

Most lenders will work with you and your agent to resolve problems with the Closing Disclosure. However, If your lender is not willing to compromise on some errors, you have the option to cancel your mortgage. Canceling the mortgage may cost you money. But it may be the best option in some situations.

Always Review Your Closing Disclosure With Care

Receiving a Closing Disclosure is part of the normal home buying process when you purchase a property by taking out a housing loan. There’s a reason for the three-day review period and you should use this time wisely.

On the closing day, don’t forget to go over the closing disclosure before you sign. Make sure that the new closing disclosure reflects all the requested changes. If you feel like there’s something wrong with the document, discuss it with your agent or lender.  Postponing the closing date on the scheduled closing day may cost you your earnest money deposit or lead to penalties. But if the error in the closing disclosure is significant enough it may be worth the price in the long run.

If there are no issues with the closing disclosure, go ahead and sign.

And, one final thing.

Don’t let this five-page document zap your energy.

Your closing disclosure is just one of the closing documents you have to deal with and you should pay attention to all the papers you sign.

Related Articles:
4 Things That Can Happen After You Send An Offer
8 Essential Facts Regarding Real Estate Purchase Agreements
How to Make a Realistic Budget for Buying a House

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