What Is a CD (Closing Disclosure) When Buying a House?

The Closing Disclosure (CD) is a standardized, five-page document provided to homebuyers, outlining the final terms of their mortgage loan and all associated closing costs. Its primary purpose is to ensure transparency and consumer protection throughout the home-buying process. Receiving and understanding the Closing Disclosure is a significant step, as it details the financial commitments involved in purchasing a home.

Key Components of the Closing Disclosure

The Closing Disclosure details the financial aspects of your mortgage loan. It presents a comprehensive overview of the loan terms, projected payments, and the various costs associated with closing the transaction.

One section outlines the final loan terms, including the loan amount, which is the total borrowed after the down payment and any rolled-in fees. It also specifies the interest rate, which is the annual fee charged for borrowing the money. This section will indicate your estimated monthly principal and interest payment, along with any conditions such as a prepayment penalty, which is a fee for paying off your mortgage early, or a balloon payment, a large one-time payment due at the end of the loan term.

Another part of the CD details your projected payments, providing a breakdown of your estimated total monthly payment. This typically includes the principal and interest, any applicable mortgage insurance, and estimated amounts for escrow. Escrow payments usually cover property taxes and homeowner’s insurance premiums, ensuring these regular expenses are managed as part of your monthly mortgage payment.

The Closing Disclosure also itemizes all costs at closing, categorized into loan costs and other costs. Loan costs encompass charges directly related to the mortgage, such as origination fees, application fees, and underwriting fees. These include both services you cannot shop for, like an appraisal or credit report fee, and services you can shop for, such as title insurance. Other costs include items like property taxes due at closing, recording fees for public records, and transfer taxes imposed by state or local governments.

Finally, the document provides summaries of transactions, distinguishing between the borrower’s and seller’s financial responsibilities. It details the amounts paid by or on behalf of each party, showing how credits and debits affect the final cash needed to close. The “Cash to Close” section calculates the precise amount of money you must bring to the closing table, factoring in the loan amount, any lender credits, and the total closing costs. This summary provides a clear and final accounting of the funds exchanged.

Reviewing Your Closing Disclosure

Upon receiving your Closing Disclosure, a thorough review is essential before finalizing your home purchase. This involves comparing the CD to the initial Loan Estimate (LE) you received earlier in the process. This comparison helps identify any significant changes or discrepancies between the estimated and final terms.

You should scrutinize specific items, such as any changes in the loan terms, including the loan amount, interest rate, or loan product. Pay close attention to the Annual Percentage Rate (APR), as it reflects the total cost of the loan over its term, including interest and certain fees. Verify that all closing costs and fees match what was outlined in the Loan Estimate, noting any increases or new charges.

Confirming personal information and property details, such as your name, address, and the property’s legal description, is important to prevent errors. If you identify any discrepancies or have questions, contact your lender or settlement agent immediately for clarification or correction. Addressing these issues before closing can prevent complications.

Receiving and Understanding the Closing Disclosure Timeline

Federal regulations dictate specific timelines for receiving the Closing Disclosure to ensure homebuyers have adequate time for review. The “3-day rule” mandates that the lender must provide the CD at least three business days before the scheduled closing date. This rule aims to prevent last-minute surprises and allow borrowers to review the document without pressure.

A “business day” in this context typically includes all calendar days except Sundays and federal holidays. For instance, if your closing is scheduled for a Friday, you must receive the CD by the preceding Tuesday, assuming no federal holidays fall within that period. This mandatory waiting period allows you to compare the final terms and costs with those initially estimated in your Loan Estimate.

Certain events can trigger a new three-business-day waiting period, requiring the lender to issue a revised CD and restart the clock. These triggers include changes to the Annual Percentage Rate (APR) beyond a specific tolerance. A new waiting period is also required if the loan product changes significantly, such as switching from a fixed-rate to an adjustable-rate mortgage, or if a prepayment penalty is added to the loan terms. Minor adjustments, such as clerical errors or small changes to non-loan costs, generally do not necessitate a new waiting period.

The Closing Disclosure at Closing

On the actual closing day, the Closing Disclosure serves as the final document that borrowers sign to confirm their agreement to the loan terms and closing costs. This document details the precise financial aspects of the transaction. At the closing table, you will review the CD one last time with the settlement agent or attorney, who can address any remaining questions.

Signing the Closing Disclosure signifies your acceptance of all the terms, costs, and conditions detailed within the document. It confirms that you are ready to proceed with the loan and the transfer of property ownership. Once signed, the terms are generally locked in, and the loan can be funded, leading to the transfer of funds and property title.