Understanding your closing disclosure
Your closing disclosure is where you’ll get all the nitty-gritty details of your mortgage, from what you’ll pay each month to your closing costs. By law, your lender has to give you this five-page document, and it’s your last shot to make sure everything looks good before the big day.
By law, your lender has to give you this five-page document, and it’s your last shot to make sure everything looks good before the big day.
So, take a deep breath and get ready to review the document closely. If you run into any questions, let your lender know so they can clear things up. That way, you can walk into your closing with confidence.
What is the closing disclosure 3-day rule?
Your lender must hand over your closing disclosure at least three business days before you seal the deal on your mortgage. This window is your chance to double check that everything about your loan, like the terms and costs, looks like what you were expecting based on your loan estimate. The 3-day window helps you ensure you’re treated fairly during the home buying process, and it helps keep lenders from pressuring you to close without giving you time to make a smart decision.
How does the 3-day rule affect the closing disclosure timeline?
Thanks to the 3-day rule, you’ll have a pretty good idea of what your timeline will look like leading up to closing day. Your lenders will do their best to make sure all the costs and fees add up, so they can issue you your disclosure on time. Once you get it, you’ll have to wait the full three days, even if you sign right away.
Parts of a closing disclosure form
By this point, you’re probably wondering, “What is in the closing disclosure, anyway?” These five pages are packed with many different details you’ll want to dive into. Let’s get started.
Loan terms
This is where you’ll find the lowdown on your loan amount, interest rate and monthly principal and interest. You can also see if there’s a penalty for paying off your mortgage early.
Projected payments
Think of this like your budget preview. This section will give you a clear idea of what you’ll be paying for your new place every month and over the years.
Costs at closing
By this point in the process, you probably have a good idea of what your costs at closing are going to be. But this section will break them down—you can usually expect them to add up to about 3% to 6% of your loan amount.
Loan costs
This part of the fine print shows you the costs for getting your loan set up, so you know exactly what you’re paying for. You’ll see the price for things like the application fee and underwriting fee.
Other costs
Get the details on taxes and other government fees, as well as your initial escrow payment.
Calculating cash to close
Your cash to close is all the money you’ll need to bring to the table on closing day. You’ll get the breakdown on things like closing costs, your down payment and any seller concessions. You’ll also be able to see if anything has changed since your loan estimate.
Summaries of transactions
This section is just what it sounds like—a summary of the transaction for both the buyer (aka you) and the seller. That means you’ll get a peek into what’s due from the seller at closing.
Loan disclosures
We’re really digging into the details now. Loan disclosures focus on the conditions of your loan. Along with info on late payments and your escrow account, this section will provide insight on things like whether a new homeowner can take over your loan, also known as assumption. You’ll also get info on whether your lender will accept partial payments and whether your loan has a negative amortization feature.
What is negative amortization?
This occurs when the monthly payments on a loan are not enough to cover the interest costs. As a result, the unpaid interest is added to the loan's principal amount, causing the total debt to increase over time instead of decrease.
Loan calculations
Want to know how much you’ll pay over the life of your loan? This section will have the figure for your total payments. It also includes your annual percentage rate (APR) and total interest percentage (TIP)—that’s how much interest you’ll pay as a percentage of your loan amount.
Other disclosures
You’re almost there! This section gives the scoop on issues like the appraisal, tax deductions and refinance info.
Contact information and confirm receipt
This section provides all the contact info you might need for the people involved in your loan. There will also be a place for you to sign to show you received your closing disclosure.
Loan estimates and closing disclosures
These two docs each have their own part to play in the mortgage game, and by understanding what they do, you’ll have a better handle on your home loan.
Loan estimates:
These are a little shorter. Loan estimates are three pages instead of five, and they give you an idea of what to expect with your payments. You’ll get initial info on things like estimated interest rate, monthly payments and total closing costs.
Closing disclosure form:
This is the real deal, and it’s what you’ll use to make sure everything lines up before you close on your loan. It lays out the final terms of your mortgage loan and helps you see exactly where your money is going. In other words, your loan estimate is just that—an estimate. Your closing disclosure is all about the actual costs.
Discrepancies between your closing disclosure and loan estimate
The numbers on your loan estimate and closing disclosure aren’t always going to match up. That’s because things like your loan amount, interest rate or closing costs might have changed since you got your loan estimate. But if there’s something that doesn’t look right, it’s important to address it with your lender or real estate agent right away. By maintaining steady communication with them, they can help you ensure everything lines up to make closing go as smoothly as possible.
