What is a Closing Disclosure, and When Do I Receive It?
Introduction
The home-buying process involves several important steps and documents, and one of the key documents you'll encounter during the closing process is the Closing Disclosure (CD). Understanding what a Closing Disclosure is and when you should expect to receive it is essential for a smooth and informed real estate transaction. In this blog post, we'll explain what a Closing Disclosure is and the timing of its issuance.
What is a Closing Disclosure?
A Closing Disclosure (CD) is a detailed document that outlines the final terms and costs associated with your mortgage loan and the real estate transaction. The CD is provided by your lender and is intended to provide transparency and ensure that you fully understand the financial aspects of your home purchase. It replaced the previous HUD-1 Settlement Statement in 2015 as part of the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) integration.
Key Components of a Closing Disclosure:
Loan Terms: The CD includes information about your loan, such as the loan amount, interest rate, and whether the rate is fixed or adjustable.
Projected Payments: It outlines your monthly principal and interest payments, along with any mortgage insurance, property taxes, and homeowners' insurance.
Closing Costs: The CD details all the costs associated with the loan and the real estate transaction, including lender fees, third-party fees, and prepaid items.
Cash to Close: This section shows the total amount of money you'll need to bring to the closing table. It accounts for the down payment, closing costs, and any credits or adjustments.
Loan Disclosures: The CD includes additional information about your loan, such as whether it has a prepayment penalty or a balloon payment.
When Do You Receive a Closing Disclosure?
The Consumer Financial Protection Bureau (CFPB) mandates that borrowers receive the Closing Disclosure at least three business days before the scheduled closing date. This waiting period is designed to give you time to review the document and ensure that the terms and costs match what you were previously provided in the Loan Estimate (LE).
The timing of the CD is crucial because it allows you to:
Compare Loan Terms: You can verify that the final loan terms, interest rate, and monthly payments align with what you were initially quoted in the Loan Estimate.
Review Closing Costs: You can examine all closing costs and fees associated with the loan and the real estate transaction, ensuring that there are no unexpected surprises.
Ask Questions: If you have questions or concerns about any of the information in the CD, you have time to address them with your lender or seek clarification.
Prepare Funds: Knowing the total amount needed at closing allows you to prepare the necessary funds, whether through a cashier's check or wire transfer.
Plan for the Move: The CD also serves as a timeline for your closing, helping you plan your move and any other logistics related to your new home.
Conclusion
The Closing Disclosure is a critical document in the home-buying process, providing transparency and protection for borrowers. Receiving the CD at least three business days before closing ensures that you have ample time to review and understand the final terms and costs of your mortgage loan and the real estate transaction. If you have any questions or concerns about the Closing Disclosure, don't hesitate to reach out to your lender for clarification and guidance.