What Is A Closing Disclosure?
Kevin GrahamJanuary 10, 2020
A Closing Disclosure is a five-page form provided by your mortgage lender 3 business days before your closing date. This form lists the loan terms, projected monthly mortgage payments and total closing costs.
The Closing Disclosure form is an important part of your home closing process. In the following sections, we’ll discuss what’s included in your Closing Disclosure, the procedure for receiving and acknowledging the form and how to correct errors.
What Is Included On The Closing Disclosure Form?
When you get a mortgage, your Closing Disclosure provides important information regarding the final details of your home loan. It’ll include finalized loan terms, disclosures and closing costs.
In order to familiarize yourself with the document, take a look at this sample Closing Disclosure. This information is broken up into several sections:
This section in the top left corner of your statement will go over when the Closing Disclosure was issued as well as your closing date and when any applicable funds will be disbursed. The property address is next and, if applicable, the sale price of the home. The name of the person or entity handling the closing will also be included.
This section will include your name and address as the clients for the mortgage along with the name of the lender. In a home purchase, the seller’s information would also be included.
The important items here are the loan term, the purpose of the loan (purchase/refi), the product type (fixed, adjustable, interest-only, etc.), and the loan type (conventional, FHA, VA, etc.). These are important things to know because they’ll tell you if your payment can change and how long you can expect to be paying off the loan. The loan type is also important because each mortgage investor has different policies regarding things like insurance and future refinancing options.
This will tell you what the loan amount is, as well as the interest rate and what your monthly payment will be. If you’re getting an adjustable rate mortgage, it’ll be disclosed here that your payment can go up after closing. Although our sister company Quicken Loans®1doesn’t charge a penalty for paying off your loan early, if there is one, it’ll be mentioned in this section.
This section will show a breakout of your monthly principal and interest payments along with other costs that may be included. These could include any applicable payments for mortgage insurance as well as estimated costs for your property taxes and homeowners insurance if you have an escrow account. The table will also show any possible future changes to the payment for situations like the removal of mortgage insurance or the increase of an ARM rate.
Costs at Closing
This section breaks down the total that needs to be paid at the closing in order to secure the loan and complete the transaction. This includes the down payment plus other closing costs for both the loan and third-party fees associated with the transaction.
Lenders charge an origination fee, which is how they make their money on the loan. Sometimes instead of calling it origination, they break into separate processing and underwriting fees. Whatever they call it, the differences in these fees can help you compare lenders.
If your loan is government-backed, there’s typically an upfront mortgage insurance, guarantee or funding fee which can either be paid as part of your closing costs or added into the loan. You’ll also need a lender’s title policy, which is insurance for the lender that there won’t be any other claims against the property and that there are no existing liens.
Except in certain refinance situations, you’ll need an appraisal in order to establish the value of a property. While these are the big ones, you’ll usually pay a fee for when the lender pulled your credit report. Finally, the lender may charge a fee for the delivery of documents.
This section covers county fees for recording the deed and any applicable transfer taxes as well as any upfront homeowners insurance and property tax payments, along with required funds to set up your escrow account. Home inspections may also be included in these closing costs.
Finally, you may pay for an optional owner’s title policy which gives you the money to buy another home in the unlikely event that someone unknown comes forward in the future with a legitimate claim to your property.
Calculating Cash to Close
This section breaks down how the total due for closing costs was calculated. This adds together your down payment, loan and other costs, subtracting any existing deposit, any fees you paid in advance and any items being paid by the seller in a purchase transaction.
Summaries of Transactions
This shows how much you (and the seller in a purchase transaction) owe or are getting back at the closing table. There’s also a breakdown of how these calculations are made.
After the math comes another section discussing the important terms surrounding your loan.
Among the items you’ll find here are disclosures on whether your loan can be assumed by another person in a sale and whether your lender can ever call for full repayment of your loan early. You’ll also have a breakdown of your initial escrow costs.
This table looks at the total amount you would pay for your loan assuming you made all your payments as scheduled without paying off any principal early. The finance charge is the difference between the total amount you end up paying and your loan amount.
You’ll also see the annual percentage rate, which is your mortgage interest rate after factoring in closing costs, along with the interest percentage you’ll pay over the life of the loan.
Here you’ll find final miscellaneous details related to your loan. You’re entitled to a copy of any appraisal, and you should also review your contract details to see what happens if you fail your obligation to make payments under the loan, including your foreclosure liability.
Finally, there’s a disclosure around the tax deductibility of interest paid on the property.
Depending on who’s involved in the transaction, this section may include contact info for the lender and mortgage broker, as well as the buyer’s and seller’s real estate agents and the closing agent.
You’re required to acknowledge receiving the Closing Disclosure promptly in order to move forward with the closing as scheduled.
What Is The 3-Day Rule?
Federal law requires that you receive your Closing Disclosure at least 3 business days prior to your scheduled closing date. The idea here is that you’re given time to make sure you’ve reviewed the loan terms so that you’re comfortable with the mortgage you’re getting.
It’s important to promptly acknowledge when you receive this document. Not doing so could cause an unwanted delay in your closing date.
Sellers receive a separate Closing Disclosure covering their side of the transaction on the day of closing. No acknowledgment is necessary.
What If Something Is Wrong With Your Closing Disclosure?
When you get your Closing Disclosure, you should compare it to the loan estimate you received shortly after application in order to look for any errors or material changes in your loan terms.
The actual loan costs should only change very minimally, if at all, from the initial loan estimate you received shortly after applying, although costs for third-party services (appraisal, title, etc.) can change by as much as 10%.
If you see a mistake, or if something just doesn’t seem right, contact your lender and/or closing agent. They’ll be able to provide an explanation.
If there is a mistake, they can correct it as soon as possible so that you can move forward with your purchase or refinance on schedule.
You should now know what to expect from your Closing Disclosure. If you’re looking to purchase a home or refi your current one, our friends at Rocket Mortgage® by Quicken Loans can help.
If you’re still looking for a home, use our network to find an agent who can align with your goals in the home buying process.
1Quicken Loans®and Rocket Homes Real Estate LLC are separate operating subsidiaries of Rock Holdings Inc. Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation, and applicable legal and regulatory requirements.