Closing Disclosure

What is a Closing Disclosure?

A Closing Disclosure is a five-page document that outlines the final details of a mortgage loan, including the loan terms, monthly payments, and the closing costs the buyer will need to pay at closing. It is provided by the lender or mortgage broker at least three business days before the closing date, giving the borrower time to review the terms and ensure everything is accurate. The Closing Disclosure is essential for both buyers and sellers, as it summarizes the financial terms and conditions of the real estate transaction, ensuring transparency.

How Does a Closing Disclosure Work? 

The Closing Disclosure contains critical financial information related to the mortgage and the transaction. Here’s what each section covers:

Loan Terms:

• Interest Rate and Loan Amount: This section details the loan amount, the interest rate, and whether these terms can change over the life of the loan.
• Monthly Payment: Provides the exact amount of the monthly mortgage payment, including principal, interest, taxes, and insurance (PITI).
• Prepayment Penalties: Lists whether any penalties apply if the borrower pays off the loan early.

Projected Payments:

• Amortization Schedule: Shows how the monthly payment will change over time, including any adjustments for property taxes or homeowners insurance.
• Escrow Information: Indicates whether taxes and insurance are included in the monthly mortgage payment or if the borrower is responsible for paying them separately.

Closing Costs:

• Itemized Closing Costs: A breakdown of all fees associated with closing the loan, including loan origination fees, appraisal fees, title insurance, and other costs.
• Cash to Close: The total amount of money the buyer needs to bring to the closing table, which includes the down payment and closing costs.

Transaction Details:

• Buyer and Seller Costs: Details the costs each party is responsible for, including any seller concessions or adjustments made between buyer and seller.
• Title and Ownership Information: Clarifies who will take legal ownership of the property and how the title will be transferred.

Other Key Information:

• Loan Calculations: Provides the total payments made over the life of the loan, including interest, as well as any finance charges.
• Contact Information: Lists the contact information for the lender, real estate agents, and closing attorney or settlement agent.

Why is the Closing Disclosure Important? 

The Closing Disclosure is critical to ensuring that borrowers fully understand the terms of their loan and are not faced with unexpected fees or terms at closing:

• Final Review of Terms: It allows borrowers to compare the final loan terms with the Loan Estimate provided earlier in the process to ensure no significant changes have occurred.
• Transparency: The detailed breakdown of closing costs helps borrowers understand what they are paying for and how much cash they need to bring to the closing table.
• Legal Requirement: The lender must provide the Closing Disclosure three business days before closing, which gives the borrower time to review and ask questions about the terms.

Example:

A borrower purchasing a home for $300,000 receives a Closing Disclosure from their lender three days before the closing date. The document shows that the loan amount is $240,000 with a fixed interest rate of 4%. The monthly mortgage payment, including principal, interest, taxes, and insurance (PITI), is $1,432. The borrower reviews the closing costs, which total $9,500, and learns they will need to bring $69,500 to the closing table, which includes their down payment and all closing costs. This final document ensures that there are no surprises, and the borrower can confirm the loan terms match the earlier Loan Estimate.

Pros and Cons of the Closing Disclosure

Pros:

• Transparency: Provides a clear breakdown of all costs, helping borrowers understand exactly what they’re paying for.
• Time to Review: By law, borrowers receive the disclosure three days before closing, giving them time to ask questions or correct errors.
• Final Confirmation of Terms: Ensures that the borrower understands the terms of their loan and that they are consistent with the Loan Estimate.

Cons:

• Complex Document: The Closing Disclosure is a detailed document that may be overwhelming for first-time homebuyers to understand without guidance.
• Limited Time to Address Issues: While the three-day review period is valuable, if errors or discrepancies arise, they may cause delays in closing.

Conclusion The Closing Disclosure is a vital part of the homebuying process, ensuring transparency and giving borrowers the information they need to finalize their loan confidently. By carefully reviewing the document, borrowers can avoid last-minute surprises and confirm that they fully understand the financial obligations of their mortgage.

You do the living. Abode does the saving

Understanding the details of a Closing Disclosure can be overwhelming, but Abode is here to help. Let our experts guide you through property taxes, insurance, and energy rates, so you can focus on enjoying your new home. Sign up today, and let Abode handle the details!