What Is a Mortgage Closing Disclosure?
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What You Should Know
- A closing disclosure is issued by a lender with all information about a loan at least 3 days before closing on a deal.
- Closing disclosure contains similar information to a loan estimate that is issued by lenders within 3 days of applying for a loan.
- Changes to loan terms by a lender must be issued in a new closing disclosure if an original closing disclosure was issued already.
What Is Closing Disclosure?
A closing disclosure is a document required when buying a property. It is one of the most important documents when buying a property, and it is widely used by lenders to provide specific information on the loan terms and conditions before a buyer closes a deal on a property. A closing disclosure form is a 5-page document that is federally required to be provided during the closing process, and it provides information about how a property will be financed.
Each closing disclosure is standardized, and they all have 5 pages. There is a closing disclosure example that may be useful to potential homebuyers. Every page contains specific information that is critical to closing on a property.
- Page 1. Overview
On the first page, a borrower can find their personal information such as their first and last name, their address and the information of the seller. In addition, it provides information on loan amount, loan term, loan type and purpose. It provides information about projected payments including monthly mortgage payments and applicable property taxes. This page contains essential information about the deal, so a borrower must check it carefully before closing the deal.
- Page 2. Closing Cost Details
The second page provides an itemized list of costs associated with closing a deal. It also provides information about who, the seller, the buyer or a third party, is responsible for paying for specific items. The itemized list extends to closing costs, loan origination charges, transfer tax, etc. The final amount for closing costs can be found at the bottom of the second page and on the first page of the document.
- Page 3. Summary of Transactions
This page provides detailed information about every transaction that is associated with the deal. It lists transactions for both the seller and buyer, and it provides the amount a buyer needs to pay at closing. It also provides the difference between a loan estimate and closing disclosure final amounts.
- Page 4. Additional Information
Page 4 provides information about the loan properties that have not been mentioned before. It provides information about penalties (such as late payment fees), whether partial payments are possible, and whether your loan balance can increase when monthly payments are paid. It also contains other information such as assumability of the loan, or in other words, whether the next owner can take over the loan in case the property is sold again.
- Page 5. Personal and Other Information
Most of page 5 provides a detailed contact information for a lender, a mortgage broker, real estate buying and selling brokers and a settlement agent. In addition to that, there is a section that provides total calculations for the loan such as the total cost of the loan, annual percentage rate and total interest percentage. On this page, there is an explanation about what happens and whether a borrower is liable to pay off the remaining loan in the event of a foreclosure.
It is very important to read through carefully and ensure that a borrower understands the information in the document. The borrower also should compare the closing disclosure with the loan estimate to see what has changed.
How to Get a Closing Disclosure
A closing disclosure is similar to a loan estimate because they provide information about a loan, and they are both received from a lender. A loan estimate is usually received in the beginning of a homebuying process, and contains how much a loan will cost if a borrower purchases a property. It can be received from multiple lenders to compare the loans. A closing disclosure is received from a single lender whom the borrower has chosen before closing on a property. A closing disclosure provides final details about a loan that may be different from the loan estimate, so it is important to compare the two documents.
A borrower can request a closing disclosure from their lender. Lenders must provide a closing disclosure at least 3 business days before closing on the mortgage to give borrowers time to finalize their decision. The borrower should ensure that they understand information provided in the document before closing on the property.
Loan Estimate vs. Closing Disclosure
A loan estimate and a closing disclosure are two documents a borrower receives during a homebuying process. Both of them contain similar information although a closing disclosure is more detailed and more accurate.
| Category | Loan Estimate | Closing Disclosure |
|---|---|---|
| Issued | 3 Days After Loan Application | 3 Days Before Closing |
| Loan Information | Estimated | Close to Final |
| Number of Lenders Issuing | Any Number | One |
A loan estimate is a document received in the beginning of a homebuying process, and it contains information about a loan such as loan term, interest rate, interest payments, total cost, etc. Usually, a loan estimate is issued by a lender within 3 days after applying for a loan. At that time, a borrower can request loan estimates from multiple lenders and choose the lender with the most optimal mortgage terms. It is important to note that the mortgage terms may change by the time the closing happens.
A closing disclosure is another document received during the homebuying process, but unlike a loan estimate, it is received before closing on a property. This document must be issued at least 3 days before closing on a property for a borrower to have time to make a final decision. It provides the same information a loan estimate provides, and it also adds information about the deal, taxes owed and details of companies involved in the property transaction. It is important to compare closing disclosure with a loan estimate to ensure that no major changes to loan estimates have occurred. While the terms in a loan estimate may change, the terms in the closing disclosure cannot be changed unless said otherwise on the document.
Changes to a Closing Disclosure
Closing disclosure is considered a final offer a lender provides. If changes occur to the loan before closing, a lender must issue a new disclosure and allow the borrower to take at least 3 days to make a decision. This means that if a lender issues a closing disclosure to a borrower, and the terms of the loan change before closing, then the lender must issue an updated disclosure and provide at least 3 days for the borrower to make a decision.
Not every change requires a notification. A lender must issue a new closing disclosure mostly when loan terms are changed. The lender must issue a new disclosure for the changes happening in the following 3 categories:
- Mortgage Prepayment Penalty
- Mortgage Product (Conventional, FHA, etc.)
- Annual Percentage Rate (APR)
Any other change does not necessarily require a notification, but any major financial change will be reflected in one of the three categories mentioned above. Additionally, if there is a major change in the financial situation of a borrower, the lender may reissue the closing agreement with new terms.