Closing Costs & The Closing Disclosure Explained

Closing on your home is exciting, but it also comes with a lot of expenses, not to mention a new vocabulary. Below you’ll find everything you need to know about what closing costs are, information on the closing disclosure in plain English and why you have to pay closing costs.

What is The Closing Disclosure Form?

The closing disclosure form is a 5 page guide which you receive three days before your closing.  It details all of the costs involved in your real estate transaction and makes sure there is a record of the deed transfer. You can find an example of the form on the government’s Consumer Finance website.

Before your closing appointment, compare this form with the Loan Estimate you received from your lender when you applied for a mortgage as it should match up. If something seems different or wrong, you should ask your lender or your closing agent about it before your closing date so you don’t delay the process.

What is the Mortgage Disclosure and Your Loan Costs (Section A)

The first page of the Closing Disclosure shows the details of your mortgage and how much you should expect to pay over time. This is a legal document, so make sure you name is spelled correctly and the address is right. You’ll want to go over the loan terms and payments and double check that it aligns with the Loan Estimate you were given when you started the mortgage process. If they do not match up, do not sign it until you get clarification from your lender.

What Does Cash to Close Mean?

Cash to close is the money needed from the buyer in order to purchase the house and includes the down payment. You can find more details about this on page 3.

Which Closing Fees Are Not Optional (Section B)

Some fees aren’t negotiable. This includes filing fees, credit report fees, appraisals or other set expenses that you cannot shop around for. These are listed in Section B. They should also match up to what was listed there by your lender.

Ways to Save on Real Estate Closing Costs (Section C)

Not all closing costs are set in stone and yes, you can save money on them.  Home buyers are allowed to compare prices and choose some service providers and those are included in Section C. Common closing costs you can avoid and lower include:

  • Document preparation
  • Attorney and legal representation
  • Notary Public
  • Title services including searches and insurance
  • Closing agent
  • Inspections – home, pest, wells, lead paint, septic system, etc.
  • Surveying

Why Did I Get Double Billed for Some Services?

Often home buyers pay for services like home or pest inspections out of pocket before the closing process. If you’ve already paid for services, send a copy of the check or payment to the settlement agent before closing. They’ll make sure that the amount is included in the disclosure and the service professional isn’t paid twice.

Why Are There so Many Title Services Listed?

A good title insurance company can provide all of the title services needed to close on a home, but you can shop for each of them separately.  However, keeping them all with the same company is normally more convenient and less expensive.

Here are the closing fees you can shop around for if you want to lower your closing costs:

  • Lender’s title insurance, based on the amount of the mortgage loan;
  • Owner’s title insurance, optional and based on the value of the property;
  • Title Insurance Binder, which is the title insurance company’s binding promise to provide insurance;
  • Title Search, which covers all of time and effort of researching the property title and clearing up any problems;
  • Settlement Agent Fee, a flat fee paid for closing services.

You’ll only see lender’s and owner’s title insurance if you’re taking out a mortgage or have chosen to purchase a policy to protect yourself in case there’s a title claim. The amount paid for an owner’s policy may be listed in “Other Costs” instead.

What are the Other Costs on the Closing Disclosure (Section E through L)

Other costs are government fees, taxes, and prepaid items not listed elsewhere. The prepaid interest is the amount of interest that accrues on your mortgage between the day you close and the day you make the first mortgage payment. Prepaid taxes are for the property taxes that won’t be covered by your escrow until the new year starts.

The different items in these sections can vary by transaction, but your Settlement Agent should be able to explain what an item is for if you have any questions.

What is the Cash to Close From Borrower?

The third page of the closing disclosure is one you’ll want to pay particularly close attention to. It’s where all of the fees are tallied up, any payments you’ve made, like a deposit or where earnest money is subtracted, and the net cash to close is calculated.

The Cash to Close From Borrower at the bottom of the page is the amount you’ll need to have wired to the escrow account before the closing date. You should wire the money a day or two in advance to make sure it clears.  You cannot bring cash or pay by credit card and if the wire transfer has not made it to escrow, your closing will be delayed.

How Do I Send the Closing Fees and Who Do They Go To?

Your closing agent will tell you how to send the money and give you the account number. Make sure you speak to the closing agent in person to avoid wire transfer scams. If you need a cashier’s check, you’ll need to know that in advance as well in order to get to the bank and have it issued.

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