When Must an Applicant Receive the Closing Disclosure?

Among these documents, the Closing Disclosure serves as a central component, providing a transparent overview of the final loan terms. This document allows individuals to review and comprehend the financial commitments before finalizing their mortgage. Its design emphasizes clarity, ensuring that borrowers are fully informed about the transaction’s specifics.

What is a Closing Disclosure

A Closing Disclosure is a five-page form that provides the final details about a selected mortgage loan. This standardized document outlines the loan terms, projected monthly payments, and all associated fees and costs required to obtain the mortgage. It presents a detailed breakdown of expenses, including the loan amount, interest rate, and the exact cash needed to close the transaction. Mortgage lenders are responsible for providing this form to the borrower.

The Closing Disclosure applies to most closed-end consumer credit transactions that are secured by real property. This includes standard home purchases and refinance transactions. However, this document typically does not cover certain types of loans, such as home equity lines of credit (HELOCs), reverse mortgages, or loans for manufactured housing not secured by real estate. For these specific loan types, different disclosure forms, like the HUD-1 Settlement Statement and the Truth in Lending Disclosure, may be provided instead.

The 3-Day Rule for Receipt

Federal regulations require that the lender provide the Closing Disclosure to the applicant at least three business days before the scheduled loan closing. The purpose of this rule, established under the TILA-RESPA Integrated Disclosure (TRID) rule, is to ensure consumers have adequate opportunity to understand their loan terms and compare them with earlier estimates.

For the purpose of this three-day rule, a “business day” is defined as all calendar days except Sundays and federal public holidays. Saturdays count as a business day if the lender’s office is open to the public on that day. The waiting period begins the day the Closing Disclosure is received by the applicant, whether in person, by mail, or electronically. Even if the document is reviewed and signed sooner, the loan cannot close until this three-business-day period has passed.

Changes That Reset the Clock

Certain changes to the mortgage loan terms after the initial Closing Disclosure has been provided require a new disclosure and trigger a fresh three-business-day waiting period before closing. This ensures the applicant has time to review significant modifications. A change in the Annual Percentage Rate (APR) that falls outside specific tolerances is one such trigger. If the APR increases by more than 1/8 of one percentage point for a fixed-rate loan or 1/4 of one percentage point for an adjustable-rate loan, a new waiting period is required. A decrease in the APR generally does not necessitate a new waiting period unless it renders the previously disclosed APR inaccurate.

Another event that resets the clock is a change in the loan product itself. For instance, if the loan type changes from a fixed-rate mortgage to an adjustable-rate mortgage, a new Closing Disclosure must be issued, and the three-day waiting period restarts. Similarly, the addition of a prepayment penalty to the loan terms also triggers a new three-day review period. These specific changes are deemed substantial enough to warrant another review period, while other minor adjustments typically do not require a new waiting period, although a corrected disclosure should still be provided.

Reviewing Your Disclosure

A primary step involves comparing the Closing Disclosure with the initial Loan Estimate that was provided earlier in the process. This comparison helps identify any discrepancies or unexpected changes in loan terms or costs. Key sections to scrutinize include the loan terms, such as the interest rate, loan amount, and projected monthly payments, along with any indications of a prepayment penalty or balloon payments.

Applicants should also meticulously examine the detailed breakdown of all closing costs, including origination charges, appraisal fees, title insurance, and government recording charges. The “Cash to Close” section should also be verified, as it indicates the final amount of money required from the applicant at closing. If any errors, inconsistencies, or unfamiliar charges are discovered, the applicant should immediately contact their lender or settlement agent for clarification or correction before proceeding to closing.