You found a house. You have a contract. And you survived home inspection, appraisal, and loan underwriting. Congratulations, the end is coming! You are on the road to becoming a homeowner.
If you choose the traditional loan type, Closing Disclosure (CD) is one of the many forms you get during the home buying process, and except for a pile of documents to sign on Closing Fate Day, the CD is , The last document you receive before owning a house. Although they are designed to give a brief overview of loan products, these five-page numbers and legal terms can still be confusing, especially if you are a first-time homebuyer. Let’s break down what it is, why it matters, and how to check for errors.
What is Closing Disclosure?
Closing Disclosure is a form issued by the lender a few days before closing the house. The five-page form contains a final summary of loan transaction details such as:
- Principal (also known as loan amount)
- Mortgage insurance
- Property tax
- Interest rate, or annual rate (APR)
- Fees such as origination fees and closing costs
- Prepaid penalty if applicable
- Escrow account information
- Monthly payment amount
- Total financial cost over the entire term of the loan.
The first page of the Closing Disclosure provides an overview of loan terms and is a great starting point. The other four pages provide important additional information. This helps determine if the loan contract details, such as late fees and the request feature that allows the lender to request full repayment, match what you expected.
You can compare the CD to the original loan quote and contact the lender to resolve any errors or unexpected changes before closing.
In addition to other loan information, your closing disclosure may specify that the borrower has made a purchase and will provide you with a service. did not do it.. In addition to homeowners insurance premiums, services purchased by the borrower include title insurance, even if you use title insurance provided by the lender or title company. Many borrowers are unaware that they can purchase these services.
Why is Closing Disclosure so important?
This is the final review of the loan before signing and committing it. Before you are legally and financially tied to a loan, you have a complete understanding of your closing costs and monthly payments, and they are modified as in the case of adjustable rate mortgages. I want to see if there is a possibility. Once you sign the closing document, you are bound by the Terms of Service until you close the loan by either refinancing, full repayment, or selling the property.
This information isn’t just for small potatoes, as the house has a large price tag. Please take the time required to check the details of the CD.
3 day rule
The Truth in Lending Act was enacted to protect borrowers by providing as much information as possible when they make loans. Along with this, your lender is legally required to give you a disclosure of the closure at least 3 business days before the closure so that you have time to look for unexpected changes or errors. (Before the three-day rule issued in 2015, these final loan terms were given at the end, which could rush decisions or overlook mistakes.)
According to the Truth in Lending Act, the three-day rule may be technically exempted “if credit extension is required to respond to a sincere personal financial emergency”. However, what is considered a “personal financial emergency” is relatively ambiguous. This usually means that there is a time limit (less than 3 days) that requires the house to be closed. If you can lose your home without closing early, you may be able to abandon the three-day rule. An example provided by the Truth in Lending Act is “the imminent sale of a consumer’s home in a three-day foreclosure.”
To waive this right, you must explain the emergency, specifically waive the waiting period, and give the lender a dated statement signed by everyone involved. According to certain instructions, this statement must be handwritten.
This rule is in place to protect you, so there is little reason to give up this waiting period unless it’s really urgent, as in the foreclosure example. You may want to close your house, but you’ll need to go through the closing disclosures in the last three days to make sure everything is correct. If you have any questions about Closing Disclosure, please contact the lender and ask unresolved questions until 100% clear.
Does the CD mean I’m definitely closing?
After concluding a housing contract, the underwriter will review all qualifications such as financial information, credit history, employment confirmation, etc., and order a valuation of the property in question and a confirmation of ownership. If all goes well, the underwriter will give you final approval for your loan and you are “obviously closed”.
Obtaining a closing disclosure actually means clarifying the closing, as the closing disclosure contains the final number based on the approval of the loan.
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Can I change the closing cost after the CD?
Technically, things outside the control of the lender, such as the cost of homeowner’s insurance against escrow, can change even after receiving the final disclosure. However, the lender fee cannot be changed once the financial statements have been issued.
If the loan details change due to “changes in circumstances” such as changes in credit score or down payment, the lender will need to provide a new CD. You need another three-day window only if:
- Loan products have changed, such as changing from a fixed rate to an adjustable rate and vice versa.
- APR increases by more than 1/8 percentage point. (The same does not apply to reduction.)
- A prepayment penalty will be added. This is the fee the lender can charge to refinance, sell the home, or repay the mortgage faster than specified in the loan.
Description of form element
The following is an overview of each section of the Closing Disclosure. (If you need more information and guidance on reviewing this document, we encourage you to check out the interactive instructions from. Consumer Finance Bureau.. )
- Loan terms: This section contains hard figures such as loan amount, interest rate, monthly principal and interest, prepaid penalties, and whether there is a balloon payment.
- Expected payment: Here you will see a breakdown of each payment, including principal, interest, payments with and without PMI, estimated escrow, and estimated total monthly payments.
- Expenses to be paid at the time of settlement: The total amount to bring to the end. See the next page for more information. “Cash to Close” takes into account all loan costs, along with down payments, full-fledged money, and seller credits.
- Loan costs: A summary of lender fees, loan points, valuation and title search costs, and the amount of insurance or tax payable as a prepayment.
- Transaction overview: It compares the transaction costs of borrowers and sellers side by side. This includes the total cost payable to the borrower and the total amount payable to the seller.
- Loan Disclosure: Any conditions between you and your lender, such as late payment penalties, whether partial payments are allowed, escrow account details, etc.
- Loan calculation: What is APR, a series of calculations that clarify the interest paid over the entire term of a loan.
How to check the closing disclosure
First and foremost, compare your financial statements with the original loan quote to see if there are any undiscussed changes. The two documents are not exactly the same, but there should be no obvious difference. Your realtor will also receive a copy of the closing disclosure and they can help you check the accuracy.
Then check for simple errors such as misspelling names. These issues are rare but need to be fixed before closing.
Finally, make these monthly payments and consider whether you are really ready to take out the loan, as detailed in the closing disclosure. Hopefully this shouldn’t be a problem as you’re already doing due diligence when you buy the loan. If you find yourself not wanting to buy a home later in the process, you can technically leave, but you lose serious money and cause a lot of problems for everyone involved.
If the closing disclosure is incorrect, please contact the lender and process the change as soon as possible. The document needs to be revised and reissued. This will provide an additional 3 days grace period and may postpone the deadline. In this case, the purchase agreement also needs to be amended.
Why is the closing disclosure different from my loan quote?
After signing a contract and formally applying for a mortgage, you will get a loan quote. (Note that this is different from the pre-approval form submitted before you formally apply for a loan.) A loan quote on page 3 is similar to a financial statement on page 5 and is like you. Contains all the important information. Monthly payments, interest rates, and estimated closing costs.
The keyword here is “quote” because the loan quote is issued before the loan is underwritten and approved. These numbers are subject to change during underwriting if there is a problem with the approval of the originally provided fees and amounts. In addition, premiums, valuation costs, prepaid interest, etc. are subject to change (and possibly subject) before the final disclosure is issued.
When will I get the Closing Disclosure?
The lender will issue the closing disclosure at least 3 business days prior to closing. This five-page document will tell you with reasonable accuracy how much your monthly payment will be. It also describes everything you will pay, what the seller will pay, and the amount you need to bring to the end.
Check these amounts and prepare any additional money you need to bring to the table. Review the entire document in the allotted 3 days. You need to compare it to the first loan quote and let the lender know if there are any errors. After that, I will go to the race. The only thing left is the closing time.