As you approach the final stages of the mortgage process, the Closing Disclosure (CD) becomes a critical document that outlines the final terms of your loan. Reviewing this document carefully before closing on your new home is essential. In this blog post, we’ll explain the CD, its use, and its associated timelines and provide a detailed breakdown of its sections and key line items.
What is a Closing Disclosure (CD)?
The Closing Disclosure (CD) is a five-page form providing final details about your mortgage loan. Like the Loan Estimate (LE), the CD is part of the Consumer Financial Protection Bureau’s (CFPB) TILA-RESPA Integrated Disclosure (TRID) rule. The CD is provided to borrowers to ensure transparency and accuracy in the mortgage process, allowing you to review the final loan terms, costs, and payments before closing.
Why is the Closing Disclosure Used?
The Closing Disclosure confirms the final terms of your mortgage loan. It helps ensure no surprises at the closing table by providing a detailed breakdown of the costs and terms initially outlined in the Loan Estimate. The CD allows you to compare the final terms with those in the Loan Estimate, ensuring that everything is consistent and accurate before you commit to the loan.
Timeline for Receiving and Reviewing the Closing Disclosure
By law, your lender must provide the Closing Disclosure at least three business days before closing. This three-day window is crucial, giving you time to review the document thoroughly, ask questions, and address any discrepancies before closing.
During this period, it’s important to compare the CD with the Loan Estimate you received earlier in the process. While some costs may have changed slightly, significant differences should be addressed with your lender.
Breakdown of the Closing Disclosure Sections
The Closing Disclosure is divided into several key sections, each providing important information about your loan. Here’s a detailed look at each section and the line items to pay attention to:
- Loan Terms
This section summarizes the final terms of your loan, including:
Loan Amount: The final amount you are borrowing.
Interest Rate: The fixed or adjustable rate at which interest is charged.
Monthly Principal & Interest: The exact amount you’ll pay each month toward the loan’s principal and interest.
Make sure these figures match your expectations based on your Loan Estimate.
- Projected Payments
This section details your expected monthly payments, including:
Principal & Interest: The main component of your mortgage payment.
Mortgage Insurance: If applicable, the cost of mortgage insurance.
Estimated Escrow: Includes property taxes, homeowner’s insurance, and other costs that may be included in your escrow account.
This section shows how your payments may change over time, especially if you have an adjustable-rate mortgage (ARM) or if escrow payments increase.
- Costs at Closing
This section provides the final summary of the costs you’ll need to bring to closing, divided into:
Closing Costs: This includes lender fees, appraisal fees, title insurance, and other costs associated with obtaining the mortgage.
Cash to Close: The total amount you must pay at closing, including your down payment.
Review this section carefully to ensure you have enough funds available for closing day.
- Closing Cost Details
This section offers a detailed itemization of all the closing costs, broken down into:
Loan Costs: Includes origination fees, application fees, underwriting fees, and any other lender charges.
Other Costs: Covers taxes, government fees, prepaids (such as homeowner’s insurance), and any escrow payments.
Pay attention to this section to ensure all fees are as expected and to identify any unexpected charges.
5. Loan Disclosures
This section provides additional important information about your loan, such as:
Assumption: Whether the loan can be transferred to another borrower in the future.
Demand Feature: Indicates if the lender can require early repayment of the loan.
Late Payment: Details the penalties for late payments.
Refinance: Information on your ability to refinance the loan in the future.
Servicing: Whether the lender intends to service the loan or transfer it to another servicer.
This section is crucial for understanding your rights and obligations under the loan agreement.
6. Summaries of Transactions
This section provides a detailed summary of the financial transactions involved in your home purchase, including:
Borrower’s Transaction: This shows the total amount you’re paying, including the loan amount, closing costs, and any seller credits.
Seller’s Transaction: Shows the amount the seller receives from the sale.
This section ensures transparency in the transaction, making understanding the flow of funds easier.
7. Additional Information About This Loan
The final section includes contact information for the lender, mortgage broker, real estate brokers, and settlement agent involved in the transaction. It also includes a space for questions or concerns you might have.
Conclusion
The Closing Disclosure is your final opportunity to review your mortgage loan’s terms before committing to it. By understanding each section and carefully comparing it with your Loan Estimate, you can ensure that everything is accurate and in line with your expectations. If you have any questions or concerns about your Closing Disclosure, our team at UnrealFi is here to help you through the process and ensure a smooth closing experience.
