Can closing costs change on the closing disclosure?

What to expect on your Closing Disclosure

The Closing Disclosure (CD) is one of the most important loan documents you’ll receive during the mortgage process.

You should read the CD very carefully, as it lists the final terms and closing costs for your home loan.

Many of these numbers will be the same as what you’ve seen before, but some elements on the CD may have changed since you initially applied. Certain closing costs may even increase.

Here’s what you should look out for when you read your CD, and how to know if the numbers you’re seeing are correct.

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What is a Closing Disclosure?

The Closing Disclosure is a 5-page document your lender or mortgage broker will provide at least three days prior to your closing date.

Also known as a CD, the Closing Disclosure is a standard part of the loan process that all lenders are required to provide to mortgage applicants. It lists the final terms, mortgage rate, and closing costs for your new loan.

The counterpart to the CD is the Loan Estimate (LE), a document you receive after applying which outlines the initial terms and costs of the mortgage you’ve been approved for.

Today’s standard Closing Disclosure replaced the HUD-1 settlement statement as the final document that mortgage borrowers are given before signing closing documents.

What information is on the Closing Disclosure?

As you review the Closing Disclosure, you’ll find important details about your mortgage loan.

Many of the key figures appear on the first page of the disclosure form, including:

• Loan information: Your loan length, loan product (e.g. conventional or FHA), interest rate type (fixed or adjustable), and loan purpose (purchase or refinance)
• Loan terms: This is where you’ll find your loan amount, interest rate, principal and interest (P&I) payment, and whether or not the loan comes with a prepayment penalty or balloon payment (most don’t)
• Projected payments: Here you’ll find a breakdown of your full monthly mortgage payment, which includes principal and interest as well as mortgage insurance, property taxes, homeowners insurance premiums, and (if applicable) HOA dues
• Costs at closing: Lists your total closing costs, including finance charges, as well as “cash to close,” which is the total amount you’ll need to bring to the closing table including your down payment

You’ll also find a breakdown of your longer-term loan costs — including the annual percentage rate (APR) and total interest cost — on page 5 of the CD.

Generally, the terms and closing costs listed on your Closing Disclosure should very closely match the ones listed on the Loan Estimate you received after you applied.

In fact, there are some items that cannot change on the CD by law. But some closing costs can increase before closing.

It’s important to understand which items can and can’t change on the CD — and by how much — so you know you’re getting the deal you were promised before you sign off on the mortgage.

Here’s what you should know about discrepancies on your Closing Disclosure.

What can change on the Closing Disclosure?

According to TRID — the set of fair lending rules that regulates Loan Estimates and Closing Disclosures — some of the costs for your loan may not increase at closing. Others may change, but only by 10% or less. Some other closing costs can increase without limit.

Closing costs that cannot change

Certain fees may not change. These fall into the “zero tolerance” category for any increases whatsoever. Such costs include:

• Lender fees
• Appraisal fees
• Transfer taxes

Lender fees, including origination charges and underwriting fees, make up a big chunk of your closing costs.

These are not allowed to change, so if you see a discrepancy between lender fees on your LE and CD, that should raise a red flag.

Closing costs that can increase 10% or less

Unless there is a “change in circumstances,” some closing costs may be permitted to change as long as the total does not increase by more than 10%.

These items include recording fees, and fees for lender-required third-party services you’ve chosen, such as:

• Title search
• Lender’s title insurance
• Survey fee
• Pest inspection fee

Note, the cost of these items cannot change at all if the service provider is an affiliate of your mortgage lender.

Closing costs that can increase by any amount

Certain closing costs are not controlled by the lender, nor do they go to the lender. They can increase by any amount at any time. These include:

• Prepaid interest
• Prepaid property taxes
• Prepaid homeowners insurance premiums
• Initial escrow account deposits
• Real estate-related fees

Can my interest rate change before closing?

Unless your interest rate is locked when you receive your Loan Estimate, it can change before closing.

Your rate can change even if it has been locked, too.

For instance, if a borrower’s credit score has fallen since applying, or if they don’t end up closing during the specified rate-lock timeframe, the rate can change.

Or, if your mortgage has a “float down option,” you might pay an additional closing cost for the chance to lower your rate if current interest rates fall before closing.

What happens when closing costs change?

Closing costs can change dramatically if your application has a “changed circumstance” — meaning you no longer qualify for, or no longer want, the loan you originally planned on.

If your loan application has changed circumstances, you will likely receive a revised Loan Estimate and later, a revised Closing Disclosure. These changes will also trigger a new three-day waiting period before your closing date.

A changed circumstance could be for a number of reasons. For example:

• You or your lender decide on a different loan program
• You make a different down payment
• Your home under appraised
• Your credit score or credit report changes
• Your income or employment can’t be verified as expected
• You change your loan type from and adjustable-rate loan to a fixed-rate loan

If closing costs have increased more than the allowed limits and your application has not had a “changed circumstance,” you are entitled to a refund of the amount above the allowable limits.

If a changed circumstance is required, the Closing Disclosure will need to be redone.

This could delay your closing, so you’ll want to contact your lender and title company to make any of the necessary changes immediately.

How to use your Loan Estimate to check the Closing Disclosure

When you started your loan, your lender issued a Loan Estimate.

The Loan Estimate (LE) is another product of the TRID rule. This disclosure replaced what was formerly known as the “Good Faith Estimate” or GFE.

Your Loan Estimate highlights the most important features of the loan and makes it easier to compare different lenders.

The numbers on your LE and CD should be similar, but might not be exactly the same. The Loan Estimate shows what you may pay. The Closing Disclosure shows what you will pay.

To make an accurate comparison between your LE and CD and make sure you’re getting the mortgage you were offered, pay attention to a few key points:

• Make sure your loan type, loan term, and monthly payment are what you expect
• Check that your interest rate is the same one you locked in, provided you’re closing within the rate lock period
• Make sure the closing costs that cannot change on the CD exactly match what’s shown on the LE
• Make sure the closing costs that can change have only increased within the 10% allowable limit, if applicable (see above)

You should also look closely at the more mundane details on your CD. Even small errors, such as the misspelling of your name or address, can create significant problems later on.

Look at your CD with a close eye and if anything seems amiss, contact your lender immediately to get the issue sorted out.

For a full breakdown of the Closing Disclosure form and tips on how to read each page, see this example from the Consumer Financial Protection Bureau (CFPB).

Why the Closing Disclosure is important

Thanks to TRID, also known as the “Know Before You Owe” rule, all lenders are required to issue a Closing Disclosure three business days prior to closing.

This important disclosure was meant to protect home buyers and homeowners who are refinancing by preventing surprises at closing.

When you receive your Closing Disclosure, be sure to read each item on the disclosure. Take note of whether there have been any changes since you received the Loan Estimate.

Do you understand the fees and have any of them changed? Do you have an escrow account and do you understand how it works?

If you’re uncertain, ask your lender to help you go over everything.

You should fully understand the terms and cost of a home loan before signing on — and you should be sure you’re getting the deal you expected.