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What is a mortgage closing disclosure?

A couple meets with their lender to close on their mortgage. © Rawpixel/Getty Images

By Jeanne Lee, Bankrate

The closing disclosure is the last document you'll receive before you close on your home loan. Review this detailed five-pager carefully to make sure all the numbers look correct before closing day.

What is a closing disclosure?

Closing disclosure definition

The closing disclosure is a legally-required five-page statement of your final mortgage loan terms and closing costs. It contains details of your loan terms, monthly payments, fees and closing costs.

Why the closing disclosure is important

The lender must provide you with the final details of your mortgage loan on the closing disclosure at least three business days before closing. That gives you time to compare the final terms and costs with the information you have previously been given on your loan estimate, the three-page document you received when obtaining the mortgage offer.

You should compare the closing disclosure with the loan estimate to see if anything has changed. If anything is unexpected or incorrect, you have time to ask the lender before the closing.

What’s in the closing disclosure

  • Loan terms - Check the figures and take note of whether the amounts of the following can increase after closing: the loan amount; interest rate; monthly payment including principal and interest; prepayment penalty, if any; and balloon payment, if any.
  • Projected payments - These add up to your monthly mortgage payment and include the principal, interest and mortgage insurance (if applicable), as well as estimated escrow and estimated taxes, insurance and assessments, both of which can increase over time.
  • Costs of closing - This section shows your upfront costs, sometimes called "settlement costs." It includes loan costs, lender credits and the amount you'll be required to pay at closing.
  • Loan costs - This section includes origination charges such as application fees, underwriting fees and points that you have to pay. Items to be paid by the seller will be noted. Other loan costs are categorized as "services that the borrower did not shop for" - including the credit report and appraisal - and those that the borrower did shop for, such as the settlement agent fee and title search.
  • Other costs - These include recording fees, transfer tax, mortgage insurance and insurance premiums due at signing.
  • Calculating cash to close - This table breaks down your costs at closing, including any deposits you've already paid, credits and anything that has changed since your loan estimate was provided.
  • Summaries of transactions - This provides a detailed look at your costs, including the house price and closing costs and the seller's costs.
  • Loan disclosures - Here you'll see legal language describing important characteristics of your loan, such as assumption, demand feature, negative amortization and escrow.
  • Loan calculations - This disclosure shows the total amount you are agreeing to pay over the life of the loan, including interest charges.
  • Other disclosures - This includes more details such as the appraisal, missed payments and other aspects of your loan.
  • Contact information - This includes details on how to reach all the parties involved in your loan.
  • Confirm receipt - Signing this page at closing indicates that you've received it.

How to check your closing disclosure

With your most recent loan estimate handy, go through each line of the closing disclosure and compare the two documents.

To start with, ensure that the spelling of your name is correct. Check your address. It's important to make sure that the loan description and amount match the loan estimate.

Make sure your loan type, interest rate, monthly payment and other key terms are what you expect. Do you understand the fees and have any of them changed? Do you have an escrow account and do you understand how it works?

Read each item on the closing disclosure and take note of whether there have been any changes since you got the loan estimate. If you're uncertain, ask your real estate agent or attorney, if you have one, to help you go over it and communicate with your lender.

Sample closing disclosure

For a helpful illustration of what your closing disclosure will look like, take a look at this sample closing disclosure from the Consumer Financial Protection Bureau (CFPB). There is an interactive checklist on the right side of the document. If you're not sure what to check, use the prompts for each section of the document to guide you.

What can and can’t change on the closing disclosure

When checking the closing disclosure, you need to know that some mortgage costs are allowed to change while others cannot. One thing that is certain: Lenders can't deliberately understate your costs and then raise the prices at closing time.

In general, if any of the following was changed from your loan estimate or looks unfamiliar, contact your lender and ask for an explanation.
  • Loan information - The majority of the time, this section should match your loan estimate. If it doesn't, ask your lender why.
  • Loan amount - Note that the loan amount can change, for example, if your closing costs were rolled in.
  • Interest rate - If there is a change from the loan estimate and you locked your rate, ask for clarification from your lender.
  • Estimated total monthly payment - This can change; be sure to ask for an explanation from your lender, if so.
  • Closing costs/cash to close - These can also change.
  • Services borrower did not shop for - Ensure there are no new services that were not on your loan estimate.
  • Services borrower did shop for - Ensure there are no new services here. If there are, ask for an explanation from your lender on how these were chosen and why they were included.
Note that some closing costs cannot increase, such as fees paid to the lender or mortgage broker, or fees for required services that you did not shop separately for, or that you paid for from an affiliate of your lender or mortgage broker. Transfer taxes may not increase, as well.

However, if there is a "change in circumstances" which requires a new loan estimate, these costs can change by any amount. A change in circumstances could be when you decide to get a different type of loan, put down a different amount, your home doesn't appraise at the expected value, your credit file changes or your income documentation isn't as expected.

Other closing costs can increase without limit, including prepaid interest, property insurance premiums, initial escrow account deposits and fees for some third-party services. These costs are not controlled by your lender.

There is a third category of closing costs that are permitted to increase by up to 10 percent. These include recording fees and some third-party service providers. If there is a change in circumstances, these costs could increase by more than 10 percent.

What to do if there’s an error on the closing disclosure

If anything on the closing disclosure looks incorrect, you need to notify the loan officer and title company to fix it before the closing. The document may need to be redone - which could delay the closing date - so it's important to contact them immediately.

What is the three-day waiting period?

The "Know Before You Owe" mortgage rule, also known as TRID (the TILA-RESPA Integrated Disclosure rule), went into effect in 2015. It includes a requirement that you receive your closing disclosure three business days before closing. This was meant to protect borrowers by preventing surprises at closing.

By giving you three business days to review your closing disclosure, you'll have time to check all the numbers and bring up any questions you might have before sitting down at the closing table. Take advantage of this time to look over all the terms of your mortgage loan, and talk to your lawyer, housing counselor or loan officer if you have any questions.

See more at Bankrate

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