Closing Disclosure Timelines & The Three Day Rule

As you’re closing on a home, helping a client, or brokering a deal; you’ll come across a document called the closing disclosure (or CD). A closing disclosure can become very frustrating and cause anxiety when you first read it. Why? Because you’re told to act immediately upon receiving it, and let’s face it, if you’re not a lawyer this can be intimidating.

The anxiety and confusion is mostly caused because the closing disclosure will only be in your possession just a few days before your closing appointment, and you’ve already had to deal with a million papers and meetings and inspections. This just adds too your pile of work.

But never fear! We’re here to help you through the ins and outs of the closing disclosure and purchasing a property so you can comply with the three day timeline.

For starters, you already know it’s your job to review the closing disclosure immediately upon receiving it. The three day timeline exists to ensure that you have enough time to remedy any discrepancies or issues within this document.

The first and most important thing to do with your closing disclosure is to compare the loan estimate on the document with the loan papers you received after applying for your loan. You are making sure the closing disclosure matches the loan estimate as closely as possible to avoid hold ups at closing.

It’s important to note that the loan estimate is an estimation of payments and fees. Some variances are to be expected, while others shouldn’t be present at all. If they do exist, you want to address them before closing.

The timeline helps promote a smooth closing process. Nobody wants you to feel confused or frustrated at the closing table. Instead, they want you to feel prepared and collected. The agent handling your closing services will also be happy to explain anything else that has your worried at the appointment and likely before.

The Three Day Rule

But how long before closing should you be supplied with the CD? This is where the Three Day Rule comes into play. This rule is simply put into place to ensure you have received the closing disclosure three days before closing.

Receiving the closing disclosure three days in advance ensures you will have had enough time to deal with any potential issues and know what you will owe upon consummation. You know what will be expected of you well before you become legally obligated to fulfill your end of the contract.

How Does the Three Day Rule Work?

The three-day rule applies to business days, including Saturdays. But Sundays and Nationally recognized holidays do not count. This means you may technically have more than three days before closing to review the document.

If you are closing on Friday, the lender must have the closing disclosure to you by the preceding Tuesday. This gives you three consecutive days to review the document before closing.

However, If you are closing on Tuesday, you are to receive it on the preceding Friday. In this case, you technically have four days to review the document before closing, but only three days count as part of the three-day rule.

If a holiday lands on any day other than Sunday within the period, this must be factored into the timeline. For example, if you are closing on a Friday, but a holiday lands on Wednesday, you will receive the closing disclosure by the preceding Monday instead of Tuesday.

It is Always Three Days?

No, the three day rule doesn’t always apply. What if there are issues within the closing disclosure? Three days may be ample time for you to review and understand the document, but may not be enough to fix any problems.

If issues are present, they must be fixed, and a revised closing disclosure will be issued. When this occurs, an additional three day period will begin to ensure that you can prepare.

There are only three ways for this to occur:

• A change in the annual percentage rate for the loan.
• Switching your loan product.
• A payment penalty has been added to your loan.

Payment penalties are rare and likely won’t appear in a closing disclosure without prior notice. Additionally, you may decide to switch from a fixed-rate to an adjustable mortgage. It may seem unlikely, but closing is a major commitment, and a lot can happen in the days before consummation of the transaction.

The most likely issue to inspire a revision of the closing disclosure is a change in the APR. You should expect minor differences between the estimation and actual loan terms, but not by much. Changes of 1/8 of a percent to most loans, 1/4 of a percent for those with irregular terms and payments, will warrant a revision.

The Three Day rule only applies to traditional mortgages, though. If you are using a reverse mortgage, you will not receive a closing disclosure. Instead, you will receive a Truth in Lending Disclosure and a HUD 1 settlement statement.

In this instance, a lender is not required to send you these documents before closing. You may request them beforehand, though. This is recommended as it will give you as much time as possible to review your product before signing the dotted line.