What to Expect from Your Closing Disclosure
The Closing Disclosure (CD) is one of the most important loan documents you will receive during the mortgage process.
You should read the CD very carefully as it contains the final terms and closing costs for your home loan.
Many of these numbers are the same as those you saw before, but some items on the CD may have changed since you originally applied. Certain closing costs can even increase.
Here's what to look for while reading your CD, and how to tell if the numbers that are displayed are correct.
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What is a final declaration?
The Closing Disclosure is a 5-page document that your lender or mortgage broker provides at least three days before your closing date.
The Closing Disclosure, also known as a “CD”, is a standard document that all lenders must make available to all mortgage applicants. It lists the final terms, mortgage rate, and closing costs for your new loan.
The counterpart to the CD is the Loan Estimation (LE), a document you receive after you submit your application that lists the original terms and costs of the mortgage for which you were approved.
Today's Standard Closing Disclosure replaced the HUD-1 Settlement Statement as the final document that mortgage borrowers receive prior to signing the closing documents.
What information can you find in the Closing Disclosure?
Reading the Closing Disclosure will provide you with important details about your mortgage loan.
Many of the metrics appear on the first page of the disclosure form, including:
Loan information – Your loan term, your loan product (e.g. conventional or FHA), your type of interest (fixed or adjustable) and your loan purpose (purchase or refinancing)Loan terms – This is where you can find your loan amount, interest rate, principal and interest payment (P&I) and whether the loan has a prepayment penalty or balloon payment (most not).Projected Payments – Here is a breakdown of your total monthly mortgage payment which includes principal and interest, plus mortgage insurance, property taxes, homeowner insurance premiums and HOA fees (if applicable)Closing costs – Lists your total closing costs as well as closing cash. This is the total amount you will have to pay on the final day, including your deposit
For a breakdown of your longer term loan costs – including the annual percentage (APR) and total interest cost – see page 5 of the CD.
In general, the terms and closing costs listed on your closing statement should be very exactly the same as those listed in the credit estimate you received after you applied.
Indeed, there are some elements that cannot legally change on the CD. However, some closing costs may increase prior to closing.
It is important to understand what items on the CD can and cannot change – so that you know you are getting the deal promised before you sign off on the mortgage.
Here's what you should know:
What can change in the Closing Disclosure?
According to TRID – the set of fair lending rules that govern loan estimates and closing details – some of the cost of your loan may not increase upon closing. Others can change, but only by 10 percent or less. Some other acquisition costs can increase indefinitely.
Closing costs that cannot change
Certain fees may not change. These fall into the “zero tolerance” category for any increase. These costs include:
Lender Fees, Valuation Fees, Transfer Taxes
Lender fees, including origination and subscription fees, make up a large part of your closing costs.
These must not change. So if you see a difference between the lender fees on your LE and your CD, that should set a red flag.
Closing costs that can increase by 10% or less
Unless circumstances change, some closing costs may change as long as the total does not increase by more than 10 percent.
These elements include enrollment fees and fees for third-party services required by the lender that you have selected, such as:
Title Search Lender's Title Insurance Survey Fee Prospectus Fee
Note that the cost of these items may not change at all if the service provider is an affiliate of your mortgage lender.
Closing costs, which can increase by any amount
Certain closing costs are not controlled by the lender, nor do they go to the lender. They can be increased by any amount at any time. These include:
Prepaid InterestPrepaid Property TaxesPrepaid Homeowner Insurance PremiumsInitial Escrow DepositsReal Estate Fees
Can my interest rate change before I close?
Unless your interest rate is locked when you receive your loan estimate, it can change before you close.
Your rate can change even if it has been banned.
For example, if your credit has declined since you applied, or if you don't close the rate lock within the specified time frame, your rate may change.
If your mortgage has a float-down option, you may pay additional closing costs for the ability to lower your interest rate if current rates drop before closing.
What happens if the closing costs change?
Closing costs can change dramatically if your application shows a "changed circumstance". This means that you will no longer qualify or no longer want the loan that you originally planned.
If your circumstances change, you will likely receive a revised credit estimate and later a revised closing statement.
A changed circumstance can have several reasons. For example:
You or your lender may opt for a different loan program. You pay another deposit. Your home under reviews. Your credit history or changes to your credit report. Your income or employment cannot be verified as expected
If the closing costs have increased beyond the permitted limits and your application did not have a "changed circumstance", you are entitled to a refund of the amount above the permitted limits.
If a changed circumstance is required, the final declaration must be drawn up again.
This could delay your graduation. Therefore, you should contact your lender to make the necessary changes immediately.
Using your credit estimate to verify the financial statements
At the beginning of your loan, your lender issued a loan estimate.
The credit estimate (LE) is another product of the TRID rule. This disclosure superseded what was formerly known as the Good Faith Estimation or GFE.
Your credit estimate highlights the key features of the loan and makes it easy to compare different lenders.
The numbers on your LE and CD should be similar, but they may not be exactly the same. The credit estimate shows what you can pay for. The Closing Disclosure shows what you will pay for.
To make an accurate comparison between your LE and your CD and to ensure that you are getting the mortgage that was offered to you, there are a few important points to keep in mind:
Make sure your loan type, loan term, and monthly payment meet your expectations. Check that your interest rate is the same as what you set, assuming you close within the interest freeze. Make sure that the closing costs on the CD cannot change exactly match what is shown on the LE Make sure that the closing costs, which can change, have only increased within the permitted limit of 10% (see above) .
You should also look carefully at the more general details on your CD. Even small mistakes like spelling your name or address incorrectly can cause serious problems later.
Take a close look at your CD and contact your lender immediately to resolve the issue if something is wrong.
For a full breakdown of the graduation form and tips on how to read each page, see this example from the Consumer Financial Protection Bureau (CFPB).
Why the closing disclosure is important
Thanks to TRID, also known as the “Know Before You Owe” rule, all lenders must issue a Closing Disclosure three working days before closing.
This important disclosure was designed to protect mortgage borrowers by preventing surprises upon completion.
When you receive your final statement, be sure to read each point of the disclosure. Note if there have been any changes since receiving the loan estimate.
Do you understand the fees and have you changed them? Do you have an escrow account and do you understand how it works?
If you are not sure, ask your lender to help you verify.
You should fully understand the terms and costs of a home loan before signing up – and you should be sure that you are getting the deal you expect.
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