A Closing Disclosure is a vital, standardized five-page document provided to a borrower that outlines the final terms and costs associated with their mortgage loan. This form is a requirement for most transactions, except for reverse mortgages, and it must be provided at least three business days before the loan is finalized. The document ensures transparency and allows the borrower to understand their financial commitments before closing the deal.
Components of the Closing Disclosure
The Closing Disclosure form includes several key sections, each of which offers specific information regarding the mortgage loan:
Loan Terms
This section details the fundamental aspects of the loan, including the loan amount, interest rate, and monthly payments. It also clarifies whether any terms can change, such as a variable interest rate.
Projected Payments
Here, the borrower can see a breakdown of monthly payments over the life of the loan, including principal, interest, mortgage insurance, and estimated escrow amounts for taxes and insurance.
Costs at Closing
This part summarizes the total closing costs, which include loan costs (such as origination fees, discount points, and underwriting fees) and other costs (like taxes, government fees, and pre-paid expenses).
Loan Disclosures
The disclosures section provides legally required information, including loan assumptions, demand features, late payment policies, and whether the loan can be refinanced.
Contact Information
This section lists contact details for the lender, mortgage broker, real estate brokers, and settlement agent involved in the transaction.
Special Considerations
Borrowers should carefully review the Closing Disclosure and compare it against the Loan Estimate they received earlier in the process. It is crucial to catch any discrepancies and address them before closing.
Itemization of Fees
The Closing Disclosure lists all individual fees associated with the loan. Borrowers should verify each fee to ensure there are no unexpected charges.
Three-Day Review Period
The federal law mandates a three-day review period allowing borrowers to thoroughly review the document before the closing process.
Examples of Closing Disclosure
Here is an example of how sections are structured in the Closing Disclosure:
- Loan Terms:
- Loan Amount: $200,000
- Interest Rate: 4.5%
- Monthly Principal & Interest: $1,013.37
- Projected Payments:
- Year 1-7: $1,260 estimated total monthly payment with mortgage insurance and escrow
- Costs at Closing:
- Closing Costs: $7,200
- Cash to Close: $15,000
Historical Context
The Closing Disclosure form was introduced as part of the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) integration, known as the TILA-RESPA Integrated Disclosure (TRID) rule. The Consumer Financial Protection Bureau (CFPB) developed this rule to simplify the mortgage process and give borrowers clear details about their loans.
Applicability
The Closing Disclosure is applicable to most real estate transactions excluding reverse mortgages. It aims to provide clarity, ensuring borrowers are well-informed before they commit to a long-term financial obligation.
Related Terms
- Loan Estimate: A three-page form providing early disclosure of the loan terms and estimated costs.
- Settlement Statement (HUD-1): A standard form used in reverse mortgage transactions to itemize all charges imposed upon a borrower and seller for a real estate transaction.
FAQs
What Should I Do If There Are Errors in My Closing Disclosure?
Is the Closing Disclosure Mandatory for All Loans?
Can Closing Costs Change After Receiving the Closing Disclosure?
References
- Consumer Financial Protection Bureau (CFPB): Closing Disclosure
- U.S. Department of Housing and Urban Development (HUD): Understanding Closing Costs
Summary
The Closing Disclosure is an essential document in the mortgage process, designed to provide borrowers with clear and comprehensive details about their loan. It includes critical information about loan terms, projected payments, closing costs, and contact information, all aimed at ensuring transparency and avoiding surprises at the closing table. Reviewing this document carefully within the three-day period provided is key to a smooth and informed closing experience.
