What Is a Closing Disclosure and What Does It Contain?
December 7th, 2022
People often feel discouraged when talking to their lenders and do not understand a word. Some greedy lenders do it on purpose - confuse their clients so they can take as much money. However, with closing disclosures, there should be nothing left unclear and unresolved. Especially when you can compare it with your loan estimate.
But let’s start from the beginning. In this article, we’ll cover the purpose of closing disclosures, what you can expect from each page, how long you have to analyze it, and more. You'll learn all about the final processes of mortgage purchase.
What is a Closing Disclosure And Why Is It Important?
A closing disclosure is an important legal document that summarizes everything related to your home loan. Depending on where you live and what type of lender you use, your closing disclosure may include information about your mortgage payment, fees, taxes, insurance, escrow account, and more.
A closing disclosure gives borrowers three days to review the documents before signing off on the loan agreement. This allows borrowers to ask questions about the terms of the deal and ensure everything is accurate.
Closing disclosures differ from credit reports because they don't report negative items like late payments or bankruptcies. Instead, they provide a list of corrections lenders might want to make to ensure the borrower understands what he or she is getting into.
The Federal Trade Commission recommends that lenders provide a one-page summary of the key points of the loan agreement, including the APR, total amount financed, monthly payment, term length, interest rate, fees and costs, and whether there are pre-payment penalties.
Closing Disclosure Usually Has 5 Pages
Your closing disclosures include all the important information you need to know before closing on your home purchase. Everything you need to know about closing costs, property taxes, and mortgage rates is written in five pages.
Lenders sometimes charge extra for certain types of loans. If you take out a 30-year fixed-rate mortgage, you could end up paying a premium for the longer duration. Similarly, if you finance part of your down payment with a gift, you'll likely be charged a fee to cover the tax implications.
The good news is that most lenders offer some sort of discount for paying off closing costs early. But there are exceptions. For example, if you're buying a house in California, you won't qualify for a cash-back incentive if you close within 60 days of signing the contract. And while you can receive discounts for prepaying your principal, you must wait three months.
In addition to standard closing costs, you'll also face additional charges if you choose to buy a home with no money down. These costs include points, origination fees, credit reports, and appraisals. You may also have to pay a seller contribution, which is a percentage of the sales price that goes toward helping fund local schools.
First Page
The first page of the closing disclosure presents you with general information about the loan and the key part-takers. There you have the information about the buyer, seller, and lender, the purpose of the loan, loan type, terms, and projected payments.
The loan terms section shows you how much you have borrowed, how much is the monthly principal, and how much are going to be your monthly payments with an added rate. There, you’ll learn more about balloon payments and prepayment penalties.
The smart thing to do it to have your loan estimate next to you and compare these two documents. A loan estimate is a loan prediction you get when you get preapproved. Estimate and closing disclosure do not have to be exactly the same, but you should have insights about potential changes, as well as the reasons behind them.
Second Page
Closing disclosure has a section on its second page that presents you with particular costs that go along with mortgage and property purchase - origination charges, projected taxes, title service, home inspection fees, commissions for real estate agents, and so on.
Be patient when combing through errors in this part of the disclosure, as there will be many different numbers that might seem small, but can stack up over time.
Third Page
The third page of the home page is where you'll find some of the most important information about closing costs. There are many items that buyers want to know about as they approach closing.
The third page will contain the summary of all closing transactions - how much you are due to the seller, how much is paid by the lender on your behalf, and the seller’s closing costs and taxes. It will be disclosed how much money the seller makes from the transaction.
Fourth Page
On the fourth page, you will find your projected escrow fees - annual property taxes, insurance premiums, and other costs that fall under escrow payments. Additionally, the fourth page is the one that answers hypothetical questions about your loan and your property. For example, there you will find answers to questions such as:
- What if I want to transfer a property title to another person?
- Can my lender ask for balloon payments?
- What if I don’t pay my monthly mortgage payment in time?
- What if I want to sell my property?
All these things you need to know beforehand, so you don’t end up in an unfavorable situation that can cost you and the lender a lot of recourses.
Fifth Page
There you’ll find contact information of the parties involved, as well as additional loan calculations. Here, you can find a detailed explanation of foreclosure - in the event of several missed payments, your lender has the right to start a foreclosure process. You will find out after how many months the process will start.
Closing Disclosure Three-Day Rule
The lender needs to provide you with a copy of the closing disclosure statement at least three business days before the scheduled closing date. You'll receive it via email, fax, mail, or hand delivery.
If you don't receive the closing disclosure statement within three business days, contact your loan servicer immediately. You're entitled to a written explanation of why you haven't received the document. Your loan servicer will send you a written response explaining what happened.
Then, you have 10 calendar days to request a hearing. If you find errors or omissions in the closing disclosure statement, notify your loan servicer. They'll work to correct the problem.
Your Loan Cannot Be Denied After You Get a Closing Disclosure
Only in case you’ve drastically changed your life in a span of a few days - lost a job, lost a lot of money, or it is proven that you have tampered with information you’ve provided - can the lender deny your loan so late in the process. In that case, the seller has the right to keep your earnest money, and you even might have to pay some penalties.
Sellers at Closing
Sellers receive a closing disclosure at the same time as the buyer and have the same three-day period to respond with any complaints. At closing, sellers pay closing costs and other real estate fees.
Oftentimes, it is the escrow holder that slows down the closing process. Precisely why a group of real estate experts and professionals founded Lightspeed Escrow - a company for all your escrow needs.
We are trustworthy, efficient, and we understand how important it is for each party that the process runs smoothly. Contact us today for more information about escrows.
