Closing Disclosure
A real estate closing disclosure is a standardized form that provides final details about the mortgage loan you have selected. It’s a critical document in the home-buying process and is provided to the borrower at least three business days before closing on a mortgage. Here's what it typically includes:
1. Loan Terms
- Loan Amount: The amount you are borrowing.
- Interest Rate: The rate of interest you’ll pay on the loan.
- Monthly Payment: Your monthly principal and interest payment.
- Prepayment Penalty: Any penalty for paying off the loan early.
- Balloon Payment: A large payment due at the end of the loan term, if applicable.
2. Projected Payments
- Payment Calculation: A breakdown of how your monthly payment might change over time, including principal, interest, mortgage insurance, and escrow (taxes and insurance).
3. Costs at Closing
- Closing Costs: A summary of the costs you’ll pay at closing, including origination charges, appraisal fees, title insurance, and other services.
- Cash to Close: The total amount you need to bring to closing, including down payment and closing costs, minus any credits or adjustments.
4. Loan Costs
- Origination Charges: Fees charged by the lender for processing the loan application.
- Services You Cannot Shop For: Costs for services required by the lender, like the appraisal or credit report.
- Services You Can Shop For: Costs for services like title insurance, where you can choose the provider.
5. Other Costs
- Taxes and Other Government Fees: Costs for recording the deed, mortgage, and transfer taxes.
- Prepaids: Costs you must pay upfront, such as homeowners insurance and property taxes.
- Initial Escrow Payment: Funds collected at closing to start your escrow account.
- Other Costs: Additional costs, like home warranties or pest inspections.
6. Calculating Cash to Close
- A detailed breakdown showing how the final figure for cash to close is calculated, including any deposits, credits, and seller-paid costs.
7. Summaries of Transactions
- Borrower’s Transaction: Details about the buyer's side of the transaction, including the purchase price, closing costs, and adjustments.
- Seller’s Transaction: Details about the seller’s side, including credits, adjustments, and any seller concessions.
8. Loan Disclosures
- Information on things like late payments, refinancing options, and servicing of the loan.
9. Contact Information
- Names and contact information for the lender, real estate agents, and settlement agent.
10. Other Important Information
- Loan Calculations: Details about the total amount of payments, finance charges, and APR.
- Other Disclosures: Information about the assumption of the loan, demand features, and homeowner’s insurance.
Importance of Reviewing the Closing Disclosure
- Accuracy: Ensure all the details are accurate, such as the loan amount, interest rate, and closing costs.
- Comparison: Compare it with your Loan Estimate to see how the terms have changed.
- Final Costs: Review the exact amount you'll need to bring to closing.
If any discrepancies are found, they should be addressed with the lender before the closing date. This document ensures transparency in the home-buying process and helps you understand exactly what you’re agreeing to before you sign the final papers.
