A closing disclosure is a five-page document provided by your lender before closing that details all final costs associated with your mortgage. Among other things, it includes:
- Loan terms
- Loan amount
- Interest rate
- Projected payments
- Monthly principal and interest payment
- Mortgage insurance and escrow
- Closing Costs
- Loan fees and other costs
- Cash to close
This will be the last document you receive from your lender prior to closing on a home. That is why it’s imperative for you to understand each section of the form before going to closing.
Closing disclosure timeline and the 3 day rule
You can expect to receive a closing disclosure from your lender at least three business days before you close on the loan. This timeframe is required by the Consumer Financial Protection Bureau (CFPB). That way, you have time to carefully review the document so you can ask questions or bring any discrepancies and typos to your loan officer’s attention.
This is the time to compare your closing disclosure with your loan estimate to ensure you’re aware if there have been any changes. There are three specific sections within the disclosure that you should pay special attention to. Changes to these areas may require your lender to send you a revised document, restarting your three-day period.
- Loan Product. This will be found in the top right corner on the first page of the document in the “Loan Information” section. You may decide to change your loan product to a different type of loan than what was listed on your loan estimate.
- Prepayment Penalty. You’ll find this listed on the first page in the “Loan Terms” section. If there has been a change made to the prepayment option, you may need to restart your three-day period.
- Annual Percentage Rate (APR). The APR is on the fifth page of the closing disclosure and can also be found on the third page of your loan estimate in the “Comparisons” section. If a change greater than .125% has been made, it could require a revised three-day period.
Remember that this is the time to be asking your loan officer questions. Don’t be afraid to speak up and ask for clarification!
Loan estimate vs. closing disclosure
You may be asking yourself, what’s the difference between a closing disclosure and a loan estimate?
Think of the closing disclosure as the final draft of your loan estimate. Both documents contain a lot of the same information. Much like its name, the loan estimate is your lender’s best estimate of costs, while the closing disclosure gives you the actual final costs that you will pay on your loan.
You’ll be given a loan estimate up to three business days after submitting your application, compared to your closing disclosure being provided three business days prior to closing. Other differences include the information required on each disclosure as well as the length of the documents.
Are you clear to close?
If you are satisfied with the contents of the closing disclosure once you receive it, you may be clear to move forward with closing on the loan. It’s important to keep in mind that the loan isn’t finalized until you sign the final paperwork at closing. The lender may still have to settle certain documents and follow up on any outstanding items. Once all is said, done, and signed, you can get the keys to your new home.
What Is a Loan Estimate?
Comparing Types of Mortgages
10 Things New Homebuyers Need to Know
What to Expect on Closing Day as a Buyer
