Is Your Closing Disclosure Actually Final?
Understand the Closing Disclosure's true nature. Learn why this crucial home loan document might change and how to review it effectively.
The Closing Disclosure (CD) is an important document in the home-buying process, designed to provide clarity and transparency regarding the final terms of a mortgage loan and all associated closing costs. It serves as a summary, ensuring borrowers understand their financial obligations before finalizing their home purchase. This document aims to prevent surprises at the closing table by consolidating essential financial information into a single, standardized form.
Understanding the Closing Disclosure
The Closing Disclosure is a five-page form that outlines the final details of a mortgage loan. It summarizes the loan terms, projected monthly payments, and all costs associated with closing the transaction. Key information includes the loan amount, interest rate, estimated monthly principal and interest payments, and whether these values can change over time.
The document also provides a detailed breakdown of closing costs, separating them into categories such as origination charges, fees for services borrowers cannot shop for, and fees for services they can shop for. It presents the total cash needed to close, including the down payment, and provides summaries of transactions from both the buyer’s and seller’s perspectives. Lenders must provide the initial Closing Disclosure to borrowers at least three business days before the scheduled closing date, allowing ample time for review.
Reasons for Changes
While the Closing Disclosure is intended to present the final terms, certain circumstances can necessitate changes, potentially requiring a new waiting period. Regulatory requirements dictate specific reasons that trigger a re-disclosure and a new three-business-day waiting period before closing. These include changes to the Annual Percentage Rate (APR) beyond a specific tolerance.
Changes to the loan product, such as switching from a fixed-rate to an adjustable-rate loan, or the addition of a prepayment penalty not previously disclosed, also trigger a new waiting period. These types of changes are considered significant and require borrowers to have additional time to review the revised terms.
The Borrower’s Review Process
Upon receiving the Closing Disclosure, borrowers should review it to ensure accuracy and identify any discrepancies. A key step involves comparing the CD to the last Loan Estimate received, as both documents use similar headings and formats. Borrowers should review the loan terms, including the loan amount, interest rate, and estimated monthly payments, confirming they align with agreed-upon terms.
Attention should be paid to all closing costs itemized on the CD, such as lender fees, third-party service fees (e.g., appraisal, title insurance), and prepaid items like property taxes and homeowners insurance premiums. If any amounts differ significantly from the Loan Estimate or are unexpected, borrowers should immediately contact their lender or closing agent for clarification and a detailed explanation. The three-day review period is designed to provide sufficient time to ask questions and resolve issues before committing to the loan terms by signing the document.