Your closing disclosure is arguably one of the most important documents you’ll run into when buying, selling, or refinancing a property. It’s important to know what you’re signing even with the help of real estate professionals by your side to answer questions. It’s the final breakdown of your mortgage loan terms and closing costs. While it may seem intimidating at first glance, reading a Closing Disclosure is entirely manageable with a bit of guidance. Let’s delve into how to read a Closing Disclosure and ensure you’re fully informed before signing on the dotted line.
What is a Closing Disclosure?
The Closing Disclosure (CD) is a standardized form that provides a comprehensive summary of the financial details of your mortgage loan. Mandated by the Consumer Financial Protection Bureau (CFPB), it replaced the HUD-1 Settlement Statement and the final Truth-in-Lending disclosure for most mortgage loans starting in October 2015. The CD is typically provided to the borrower at least three business days before the closing date, allowing time to compare to your loan estimate previously provided by your lender.
Key Components of a Closing Disclosure:
1.Loan Term: Details your mortgage terms, including the loan amount, interest rate, monthly payments, prepayment penalties, and balloon payments.
- Projected Payments: Breaks down your monthly payments, including principal, interest, mortgage insurance, and escrow amounts.
- Costs at Closing: Itemizes closing costs, typically ranging from 3% to 6% of the loan amount, and includes the cash needed to close.
- Loan Costs: Provides an overview of fees associated with your mortgage, such as origination fees, mortgage points, and underwriting fees.
- Other Costs: Covers additional expenses like taxes, prepaids, initial escrow payments, and various fees.
- Summaries of Transactions: Compares costs between the borrower and seller, detailing adjustments and amounts due at closing.
- Loan Disclosures: Furnishes detailed loan conditions regarding assumptions, late payments, security interests, and escrow accounts.
- Loan Calculations: Summarizes the total loan costs, including finance charges and the annual percentage rate (APR).
- Other Disclosures: Provides general information about appraisals, contract details, and tax deductions.
- Contact Information and Confirm Receipt: Includes contact details and a signature line to confirm receipt of the form, without obligating you to accept the loan.
