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What is the Closing Disclosure?
What is the Closing Disclosure?
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The Closing Disclosure is a vital document in the mortgage process that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs). The form is designed by the Consumer Financial Protection Bureau (CFPB) to ensure that borrowers understand all the costs and obligations of their mortgage agreement. Here are key aspects of the Closing Disclosure:
Purpose
The Closing Disclosure aims to provide transparency and help borrowers understand their financial commitment by detailing the terms and costs associated with their mortgage loan before they finalize the transaction.
When You Receive It
Under the Truth in Lending Act (TILA), as amended by the Real Estate Settlement Procedures Act (RESPA) and implemented in the TILA-RESPA Integrated Disclosure (TRID) rules, the lender must give you the Closing Disclosure at least three business days before you close on the mortgage loan. This period is intended to give you ample time to review the terms and costs laid out in the document.
What’s Included in the Closing Disclosure
- Loan Terms: This section includes the loan amount, interest rate, monthly principal and interest payments, and whether the interest rate is fixed or adjustable.
- Projected Payments: This section shows how your payments may change over time including principal, interest, mortgage insurance, and estimated escrow amounts (if applicable). It details how the payment amounts could evolve due to changes in interest on an adjustable-rate loan or changes to property taxes or insurance.
- Costs at Closing: This outlines your closing costs, itemizing each fee. It includes the lender’s fees, title search and insurance costs, prepaids (like property taxes and homeowners insurance), and any other fees.
- Other Costs: This includes taxes and government fees, prepaids (insurance premiums, property taxes), initial escrow payment at closing, and any other fees involved in the transaction.
- Cash to Close: Shows the total amount of money the borrower will need to bring to the closing, including closing costs and down payment, minus any deposit and seller credits.
Comparisons and Other Information
- In Five Years: Shows the total amount paid in the first five years of the loan, including principal, interest, and mortgage insurance, and how much principal you will have paid off.
- APR and Total Interest Percentage (TIP): The Annual Percentage Rate (APR) represents the cost of your credit as a yearly rate. The TIP tells you the total amount of interest that you will pay over the loan term as a percentage of your loan amount.
- Loan Calculations: Total number of payments, total principal paid, total interest paid, finance charges, etc.
Importance of Reviewing the Closing Disclosure
Borrowers should thoroughly review the Closing Disclosure to ensure all terms and costs are correct and have not significantly changed from the initial Loan Estimate. Any discrepancies or unexpected changes should be addressed with the lender before closing. It’s also a good opportunity to ask questions and clarify any details about the loan terms and conditions.
This document is essential not just for its informational content but also as a final check before committing to the loan, providing an important safeguard for borrowers.