A closing disclosure is one of the most significant legal documents you will consider before closing on your mortgage loan. This five-page document is your last chance to verify that vital information, such as the terms of your loan, your monthly payment, your interest rate, and other closing costs, are accurate. It’s important to understand closing disclosures so that you are confident it is in your best interest. As an attorney-owned title agency, we’re the perfect people to help you with that.
The Three-Day Rule
To ensure that homebuyers are not pressured into committing to loans they cannot afford, the Consumer Financial Protection Bureau (CFPB) created the three-day rule in 2015. The three-day rule, nicknamed "Know Before You Owe," requires lenders to provide you with a closing disclosure at least three business days before your closing date. During this time, take the time to thoroughly review your paperwork with your loan officer and settlement agent to confirm that you are signing off on the terms you originally applied for in your loan estimate.
Loan Estimate vs. Closing Disclosure
A loan estimate is the lender’s estimate of the loan terms that you qualify for based on the information you provide on your loan application. The closing disclosure is the fully vetted version of your loan estimate after the initial information you provided is verified.
Why the numbers on your loan estimate and closing disclosure could differ:
There are usually only three reasons:
Your rate wasn’t locked in when you submitted your final application
Your credit scores dropped on the final credit report
Your home appraised for less than the sales price or the refinance estimate
Terms to Know in Closing Disclosures
Loan Information
Your loan term, loan purpose and loan program should match your loan estimate.
Loan Terms
Your loan terms include your final loan amount, interest rate and monthly payment amount.
Projected Payments
Your projected payments are your total final Principal, Interest, Taxes, and Insurance (PITI) payment at the time of closing. You may also choose to include your estimated escrow amount, which is your property taxes and homeowners insurance.
Escrow Account
You need to keep a certain amount of money in your escrow account to pay your property-related bills. If you do choose to include your property taxes and homeowners insurance in your closing disclosure, this will tell you how much will be collected at closing and how much will need to go into escrow.
Costs at closing
Closing costs are the fees and expenses that go into securing your loan. They may include appraisal fees, title searches, title insurance, surveys, taxes, etc.
Late payment fee
This is part of the fine print to pay attention to that tells you when your payment is considered late and how much you will have to pay if it is.
Annual Percentage Rate (APR)
Your APR is your closing costs divided by your loan’s repayment term, shown as a percentage. The lower your APR is, the better (generally.)
For a deeper dive, check out the CFPB’s closing disclosure explainer.
Next Steps
Typically, a lender will not issue a closing disclosure if you are not likely to close, but there are a few more steps before you are officially clear to close. The lender may still need to finalize your loan by checking employment, reviewing your credit to make sure you did not open new accounts, and verifying all the figures for your escrow account. The lender still needs to prepare your closing documents and coordinate the final signing with a title company or attorney.
Get in touch with us
As an attorney-backed closing company, Clover Lane Settlement Services gives you an advantage in the closing process. Our attorneys can get involved right away to offer advice, explain complicated legal terms, and help solve any problem to keep the deal on track to close. Contact us today to speak with our experienced settlement agents and attorneys.