Explaining the Closing Disclosure

A closing disclosure is a document that your lender gives you as a final step toward buying a house or refinancing. This five-page form acts as a checking point, so you can make sure that everything is correct and in line with previous agreements.

Revisiting the details is very important because it eliminates the chances for human error or manipulation. Imagine how frustrating could it be if you had to postpone house-buying just because someone had made a spelling mistake, or written a wrong address.

If you’ve ever gone through a loan buying process you know about the pile of paperwork needed. Nevertheless, a closing disclosure might be the single most important document of all, that you’ll receive before signing a closing agreement.

Knowing how much confusing and, to be honest, boring real estate transactions can be, we made this article to inform you about ins and outs of the closing agreement.

What Is a Closing Disclosure?

A closing disclosure is a five-page form containing the details of your loan, delivered to you three days before the closing day. By receiving it you are starting the closing process, and it is important that you take this part seriously, because everything that says on those five pages makes or breaks the next several years of your life.

Sit down with your real estate agent to comb through the information written in the form and check for minor misspellings on every page. Since it is the last step before closing, the closing disclosure includes all expenses and added homebuying costs - including real estate taxes, third-party service providers’ fees, and property taxes.

What Is the Three-Day Rule?

The three-day rule in real estate refers to the time frame in which the lender is obligated to deliver the closing agreement to you. According to state-wide guidelines for borrower protection, a lender is lawfully obligated to grant you access to a copy of the closing disclosure at least three business days before the closing day. This leaves you enough time to examine the details and contact your lender for additional information.

Closing disclosures were not a common practice 10 years ago. In fact, most borrowers saw the detailed information about their loan in one place on the day of the closing.

Stressful as it is, this day is not for additional questions and second-guessing, not to mention that many mistakes could be overlooked because of the anxiety.

A closing disclosure grants you plenty of time to question everything and make sure that you do it right.

The Difference between Loan Estimate and Closing Disclosure

When you get your closing disclosure, the first thing you need to do is grab your loan estimate. A loan estimate is essentially an early version of a closing disclosure. It is a three-page form, and it is delivered to you three business days after you get approved for a mortgage.

The loan estimate and closing disclosure should contain the same digits, and if you notice any strange differences - higher mortgage rate, added closing costs, etc. - contact your lender or selling agent immediately.

A loan estimate is, in a way, an outline that can change in the process. Closing disclosure, however, is practically unbreakable once you sign them, except in extenuating circumstances.

First Page of the Closing Disclosure

We decided that the best way to explain the definition and use of a closing disclosure is to go through it, page by page. This way you’ll note what to pay attention to and where you can expect potential mistakes.

The first page of the disclosure statement includes basic information about three main actors in the real estate transaction - borrower(buyer), seller, and lender. General loan information is also included, so you immediately know the term, purpose (buying or refinancing), as well as the loan type you are buying.

After the details about the closing day, there are three sections detailing the loan repayment. The Loan terms section includes the exact amount of money that you borrowed, an interest rate, and a monthly principal with interest. It also answers the question about balloon payments and prepayment penalties.

Projected payments clause is about the monthly payments calculation with additional costs, such as mortgage insurance, escrow details, and estimated taxes and assessments. This section will tell you how much money you’ll be paying each month.

The section about costs at closing discloses your financial obligations for the closing day, but each item is detailed on pages to come. When checking the first page, pay close attention to the interest rate and balloon payments. Make sure there are no discrepancies.

Second Page of the Closing Disclosure

Moving on, the second page is all about the precise report on each and every cost. Origination charges, taxes, prepaids, and title services are just some of the many expenses that are revealed in this document.

This page also tells you about real estate commissions, home inspection fees, and some government fees besides taxes. This is the page with many digits, and it may seem unimportant because most of those numbers are in double digits. Nevertheless, be patient when checking for mistakes, those double-digit mistakes can add up to a significant sum.

Third Page of the Closing Disclosure

The information about the real estate transaction at closing can be found on the third page of the disclosure. First, the Cash to Close section is a table for comparison between the final version and the loan estimate. You should already know beforehand and agree to new terms if there are any.

Right under this table is the clause representing the summary of all transactions happening at closing. You will be able to read what you (the borrower) are due, and what is paid on behalf of you (by the lender).

The seller’s financial obligations will be disclosed, including their previous loan, their closing costs, and taxes. You will be able to know exactly what the seller is making from this transaction.

Fourth Page of the Closing Disclosure

Lenders will disclose the obligations, the rights, and the limitations in connection with the property and the loan. This is all clarified on the fourth page of the closing disclosure.

The lender will write an assumption, a potential situation you might find yourself in, and write down actions you should follow in those cases. This will answer the questions such as:

• What will happen with the loan if I transfer the property to another person?
• Does my loan have a demand feature, which permits the lender to ask for balloon payments?
• What will happen if I don’t pay the monthly installment?

This is the part where you can establish how much you’ll be paying on escrows and whether or not those costs change over time. You can decline to have an escrow, but you would have to pay taxes and other additional expenses directly in yearly installments.

Fifth Page of the Closing Disclosure

You can find final loan calculations and contact information on the last page of this document. Your lender might decide to fit other disclosures, such as tax deductions, potential partial payment, appraisal copies, and explanation about foreclosure.

Contact information should be without any mistakes because one letter can delay the whole process. Make sure that you have your real estate agent check the document before signing.

Can Your Loan Be Denied after Issuing a Closing Disclosure?

If everything you stated and submitted as proof of your financial situation is legit and true - your loan will not be denied after issuing a closing disclosure. If, however, you meddled in shady business, tampered with the proof of income, or even drastically changed your job during the process - there is a chance that the lender will deny your application.

That is why it is recommended not to change jobs or anything in your life that could affect your FICO credit scores and DTI ratio. Lenders like to see that you have a stable life with a stable income.

Do Sellers Recieve a Closing Disclosure?

To comply with the regulations, both buyer and seller need to receive a closing disclosure in most real estate transactions. However, if you were to sell the property to SleeveUp Homes, many closing costs will be reduced, if not eliminated. Plus, we offer top dollar for your property.

No need to go through the stressful work of revamping your property in order to sell it, when we offer at least $10,000 more than others - today. Don’t believe us? Request an offer right now and see it for yourself.

Author:

Cesar Gomez , Broker /

Cesar has worked as a real estate agent and broker in the southern California region since 2013.

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