What is a Closing Disclosure?

What Is A Closing Disclosure Form? 

The Closing Disclosure is a five-page form that a lender provides to a real estate buyer, and should be provided at least three business days before a loan closes. The Closing Disclosure (CD) outlines the final terms and costs of the mortgage. Whereas the HUD-1 settlement statement was long and confusing, the Closing Disclosure Form used today is more streamlined.

Why Is the Closing Disclosure Form Important?

You can consider the Closing Disclosure Form the final version of the loan estimate, formerly called a good faith estimate, that should have been received when you first applied for your loan.

What Is the Closing Disclosure Three Day Rule?

CFPB regulations require that home buyers receive the Closing Disclosure Form at least three days prior to closing.

This advanced notice timeline can give Buyers or Sellers time to review the numbers and raise any questions they have. Closing Disclosure Form timeline guideline gives mortgage borrowers more time to review and get their questions answered properly.

Buyers may be given three more days to decide whether they wish to proceed if there are changes in these key areas: 

  • Increases to the annual percentage rate (APR) of more than ⅛ of a percentage point for a fixed-rate loan or ¼ of a percentage point for an adjustable-rate mortgage (ARM) loan
  • Addition of a prepayment penalty
  • Changes in the loan product (e.g., a switch from a fixed-rate mortgage to an adjustable rate mortgage)

What Is in a Closing Disclosure?

The Closing Disclosure Form offers important numerical information you’ll need to review, including:

  • Loan terms: Loan amount, interest rate, projected monthly payments (principal and interest), prepayment penalty (if applicable) and balloon payment (if applicable)
  • A breakdown of your projected monthly mortgage payment: Principal and interest, private mortgage insurance and your estimated escrow payment (for property taxes and required insurances, which can increase over time)
  • Closing costs: A break down of the closing costs associated with the real estate transaction,
  • Loan costs: Origination fees along with any applicable prepaid interest points, services the borrower did not shop for (like the appraisal) and services the borrower did shop for (like the title search and pest inspection)
  • Other costs: Taxes, fees, and prepaid costs as well as any other fees, such as for a home warranty
  • A cash-to-close table: Shows what costs have changed since your loan estimate
  • A transaction summary table: Provides the big picture of what you’re paying versus what the seller is paying
  • Loan disclosures: Boxes that are checked that apply to your loan, such as whether or not it’s assumable and whether or not you’ll have an escrow account to collect and distribute your property tax and homeowner’s insurance payments
  • Loan calculations: Total payments, finance charge, amount financed, APR and total interest percentage (TIP)
  • Other disclosures: Details about your appraisal, loan and what happens if you don’t make your payments
  • Contact information: How to reach the lender, brokers and settlement agent involved in your loan
  • Confirm receipt: Signing the final page of the Closing Disclosure Form only indicates you’ve received it; this form will be available for you to sign at the close

What If You Have a Question about the Numbers on the Closing Disclosure?

For questions, you may speak with your real estate closing attorney to see if any adjustments need to be made to the Closing Disclosure.

Closing Disclosure Forms Are an Excellent Source for the Real Estate Transaction Summary

For questions about your Closing Disclosure or real estate transaction, contact our real estate attorneys today at 1-888-988-6613 or request a free case evaluation.

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