What Triggers a Revised Closing Disclosure?

The Closing Disclosure (CD) is a document provided to consumers during the mortgage process. It serves as a summary of the final terms of a loan and closing costs. This document ensures transparency and allows consumers to review financial details before finalizing the loan.

The Purpose of the Closing Disclosure

The Closing Disclosure gives borrowers an overview of their mortgage loan. It consolidates information from the Loan Estimate, offering a final statement of financial aspects of the transaction. This includes a breakdown of the loan terms, such as the interest rate, monthly payments, and loan amount.

The document itemizes fees and costs associated with the mortgage, including origination charges, appraisal fees, title insurance, and government recording charges. By providing this breakdown, the Closing Disclosure enables consumers to compare the final terms with their initial Loan Estimate, helping them understand changes and ensure accuracy.

Circumstances Requiring a New Closing Disclosure

Changes necessitate a revised Closing Disclosure to the borrower. These requirements protect consumers and ensure they are informed of alterations to their loan terms or costs.

A trigger for a revised Closing Disclosure is a change to the Annual Percentage Rate (APR). If the APR increases beyond a certain threshold after the initial CD has been issued, a revised disclosure is required. For most loans, this threshold is an increase of more than 1/8 of a percentage point. For irregular transactions, such as those with multiple advances or irregular payment periods, the tolerance is slightly wider, allowing for an increase of up to 1/4 of a percentage point.

A change in the loan product mandates a revised Closing Disclosure. If a borrower switches from one type of loan to another, such as a fixed-rate to an adjustable-rate mortgage, the lender must provide a revised CD. This ensures the borrower understands the new terms and implications.

The addition of a prepayment penalty to the loan terms after the initial Closing Disclosure triggers a revised CD. A prepayment penalty is a fee charged to a borrower who pays off a mortgage loan earlier than scheduled. Its inclusion requires re-disclosure to inform the borrower of this significant financial term.

Significant changes to closing costs can necessitate a revised Closing Disclosure, governed by tolerance thresholds. Fees fall into different categories based on how much they are allowed to change between the Loan Estimate and the Closing Disclosure. Zero tolerance fees, such as lender origination charges, mortgage broker fees, and transfer taxes, cannot increase at all. These also include fees for services the borrower was not allowed to shop for, like appraisal fees and credit report fees. If any of these fees increase, it triggers a revised CD.

Fees with a 10% tolerance mean their aggregate total cannot increase by more than 10% from the amount disclosed on the Loan Estimate. Examples include recording fees and third-party services for which the borrower was allowed to shop and chose a provider from the lender’s list. If the cumulative increase for these fees exceeds 10%, a revised Closing Disclosure is required.

Certain fees have unlimited tolerance, meaning they can change without restriction if the initial estimate was made in good faith. These include prepaid interest, property insurance premiums, and initial escrow account deposits. Fees for services chosen by the borrower when they selected a provider not on the lender’s provided list also fall into this category. While these fees can fluctuate, the lender is still expected to provide a reasonable estimate initially.

Other material changes can trigger a revised Closing Disclosure. For instance, a significant change in the appraisal value that directly impacts the loan terms or unpredicted changes in title fees not covered by the 10% tolerance rule may require re-disclosure. Any change that materially affects the borrower’s obligation or the terms of the loan warrants a revised CD.

The Revised Closing Disclosure Process

When a change triggers the need for a revised Closing Disclosure, the lender is obligated to provide the revised document to the borrower. This re-disclosure ensures the consumer remains informed of their loan’s current terms and costs.

An important aspect of this process is the mandatory waiting period that follows the issuance of a revised CD. Consumers must receive the revised Closing Disclosure at least three business days before the scheduled loan closing. This three-day period provides the borrower time to review updated information and understand modifications.

The three-business-day waiting period restarts if the revised Closing Disclosure is issued due to one of the key triggers: an increase in the Annual Percentage Rate, a change in the loan product, or the addition of a prepayment penalty. For the purpose of the Closing Disclosure, a “business day” is defined as all calendar days except Sundays and federal public holidays. This definition helps determine the exact date the loan can close after a revised CD is received.

Upon receiving a revised Closing Disclosure, the borrower should review updated figures and terms. It is advisable to compare the revised document with previous versions, such as the initial Closing Disclosure and Loan Estimate, to identify discrepancies or changes. Borrowers should ask their lender or other relevant parties, like their real estate agent or closing attorney, questions about new or altered information to ensure they understand the implications before proceeding with loan consummation.