What Is a Closing Disclosure (CD) in a Mortgage?
Navigate your mortgage confidently. Understand the Closing Disclosure (CD), a vital document detailing your loan terms and final costs before closing.
A Closing Disclosure (CD) is a five-page form providing the finalized details of a mortgage loan, including its terms, projected monthly payments, and all associated fees and costs. It offers a comprehensive overview of financial commitments. This document aims to provide clarity and transparency, allowing borrowers to understand precisely what they are agreeing to before finalizing their loan.
What is the Closing Disclosure?
The Closing Disclosure is a standardized form from the TILA-RESPA Integrated Disclosure (TRID) rule. The Consumer Financial Protection Bureau (CFPB) implemented this rule to simplify and clarify the mortgage process for consumers. The CD replaced two older federal forms: the HUD-1 Settlement Statement and the Truth in Lending Disclosure.
The Closing Disclosure offers clear, detailed information about the mortgage loan’s terms, projected payments, and closing costs. It promotes transparency by presenting all financial aspects clearly. By standardizing this document, borrowers can compare loan offers and understand the financial implications of their chosen mortgage. This helps prevent unexpected charges and ensures borrowers are fully informed before finalizing their home loan.
Key Sections and Information on the Closing Disclosure
The Closing Disclosure provides a comprehensive financial overview across its five pages. The initial pages detail the final loan terms, including the loan amount, interest rate, and estimated monthly principal and interest payment. This section also specifies if the loan includes a prepayment penalty, a fee charged if the borrower pays off the mortgage early, or a balloon payment, a larger lump sum due at the end of the loan term.
The document breaks down projected payments, showing a monthly payment calculation. This includes the principal and interest, any applicable mortgage insurance, and estimated contributions to an escrow account for property taxes and homeowner’s insurance. The Closing Disclosure itemizes all costs associated with closing the transaction, distinguishing between borrower-paid and seller-paid expenses, along with any lender credits. These costs, sometimes called settlement costs, can range from 3% to 6% of the loan amount.
A section outlines the “Cash to Close,” the total amount the borrower must bring to the closing table to complete the transaction. This figure accounts for the loan amount, closing costs, and any credits or debits from the seller. Summaries of transactions provide a detailed breakdown of debits and credits for both the borrower and the seller.
The Closing Disclosure also includes loan disclosures outlining specific features of the mortgage. These can include whether the loan is assumable or if it has a demand feature. Information regarding late payment fees, potential negative amortization, and policies on partial payments are also detailed. The document provides comparisons like the Annual Percentage Rate (APR) and the Total Interest Percentage (TIP). Contact information for all parties involved, including the lender, real estate professionals, and settlement agent, is provided.
The Closing Disclosure Timeline and Review Process
Borrowers receive the Closing Disclosure at least three business days before the scheduled loan closing. This mandatory waiting period, often referred to as the “3-day rule,” provides ample time to review the document thoroughly before signing. This timeframe allows borrowers to raise any questions or concerns.
During this review period, compare the Closing Disclosure with the initial Loan Estimate. Borrowers should check for consistency in loan terms, interest rates, and closing costs. Significant changes in loan amount, interest rate, or the presence of a prepayment penalty or balloon payment should prompt immediate inquiry.
If any discrepancies or errors are identified, the borrower should immediately contact their lender or settlement agent for clarification. Addressing these issues before closing is important, as certain changes may require a revised Closing Disclosure and trigger a new three-business-day waiting period. This review ensures that the final loan terms align with expectations and protects the borrower’s financial interests.