Are you getting ready to close a loan?
So you reached the end of the lending process and are ready to close on your new property. Congratulations!
While exciting, this final step to homeownership is crucial for your mortgage and timeline. This is when you’ll receive your Closing Disclosure, a critical document that lays out all the terms and conditions of your loan.
Mortgage expert Ivan Simental explained what exactly a Closing Disclosure is and what questions to ask when you receive one on a recent episode of The Mortgage Reports Podcast. Here’s what he had to say.
Listen to Ivan on The Mortgage Reports Podcast!
What is a Closing Disclosure?
A Closing Disclosure (CD) is a five-page form that provides the final details about your mortgage. It includes your personal information, the loan terms, your projected monthly payment amount, and how much you will pay in fees.
By law, your lender must give you the Closing Disclosure at least three business days before you close on your loan. This is known as the “three day rule” and is meant to give you enough time to review your final terms and costs compared to your Loan Estimate, as well as time to ask your lender questions before heading to the closing table.
You will not receive a Closing Disclosure when applying for every type of mortgage, however. Reverse mortgages, home equity lines of credit (HELOC) and manufactured housing loans are among those that come without a CD, according to Simental.
Why Closing Disclosures matter
If you’re purchasing a new home or refinancing your current loan, the Closing Disclosure allows you to compare your actual loan terms to what you expected. Once you sign one, you are committing to the conditions presented in front of you.
The CD ensures your lender provided you with all your mortgage information and everything matches your original offer, so it’s crucial that you read this document carefully. “It’s super, super important that you understand all the terms of your loan before you sign on that lovely dotted line,” Simental explains.
“It’s super, super important that you understand all the terms of your loan before you sign on that lovely dotted line.”
For example, is your interest rate the same as what you were quoted in the beginning of your application process? Are there any fees you were unaware of or aren’t supposed to be there?
If everything goes according to plan, the loan approval, home appraisal, insurance and calculation of all third party fees will be completed before the Closing Disclosure is issued to you. The Closing Disclosure can be overwhelming to review, especially if you don’t know what you’re looking for. If you’re using a real estate agent, they can help go over it with you.
Make sure the Closing Disclosure is perfect when you sign
Once you receive your Closing Disclosure, you’ll know what you owe at closing and your monthly mortgage payment amount. After you sign the disclosure, you and your lender cannot change the mortgage terms.
However, you can still opt out of the loan if you change your mind. Though you may incur fees or damage to your credit report if you do so.
If you find an error in the disclosure, contact your lender, escrow agent or settlement agent as soon as possible to have it corrected. “Everything has to be perfect on this document,” Simental states. Even things as seemingly simple and harmless as a misspelled name or street address. Any and all errors can cause delays in closing.
To help ensure the disclosure is correct, Simental advises every borrower take the following steps:
- Ask to see all documents in advance. Double-check the loan information and your personal data
- Ask questions to everyone involved and make sure they have what they need. Question anything that seems odd or you don’t understand
- Talk to your closing agent well ahead of your scheduled closing to make sure you understand who is in charge of what
- Origination, processing and underwriting are standard fees lenders charge. Look out for miscellaneous junk fees. If it looks like it shouldn’t be there, chances are it might not need to be
The bottom line on Closing Disclosures
Your Closing Disclosure is the last thing that stands between you and finalizing your mortgage.
It may feel like a mere formality to quickly sign before moving into your new home, but the information in the Closing Disclosure must be flawless. Errors can end up pushing back your closing and move-in date.
So read your Closing Disclosure thoroughly to make sure all terms are correct. And if you see anything you’re unclear on, just ask your lender or real estate professional for help.