Loan Estimate Versus Closing Disclosure

Loan Estimate Versus Closing Disclosure Closing Costs

Gustan Cho Associates are mortgage brokers licensed in 48 states

Closing costs on the Loan Estimate versus Closing Disclosure will most likely be different. The itemized closing costs on the Loan Estimate (LE) is normally over-disclosed since most costs and fees were estimated on the very high end. If closing costs are higher than 10% of the disclosed amount, the loan officer/lender is liable for the cost. Therefore, most lenders will overly disclose the line items on the fee sheet on the Loan Estimate. We will be covering the two important disclosures borrowers acknowledge during the mortgage process. It is very important to fully understand the differences and similarities between the Loan Estimate versus Closing Disclosure. 

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When Is The Loan Estimate Disclosed To The Borrower?

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Once home buyers decide to purchase a home, they need to select a mortgage lender to qualify for a loan program: Buyers will initially speak with several mortgage lenders. Some will tell buyers, they do not qualify due to their lender overlays while others may qualify buyers. Not all lenders have the same requirements on FHA, VA, USDA, Conventional loans.

Buyers will then choose a lender who pre-approves them and will sign the paperwork. Borrowers need to understand the difference between Loan Estimate Versus Closing Disclosure.

Once a mortgage loan application has been completed, the opener of the lender will send out the disclosure package to the borrower which included the Loan Estimate. The Loan Estimate will list, a list of all potential costs and fees the borrower may incur during the mortgage process and due at closing. All of the fees in the LE are overly inflated and the actual closing costs will be substantially less.  Click here to get estimate for your loan

How Accurate Are Closing Costs Listed On The Loan Estimate Versus Closing Disclosure?

Once the mortgage application is completed, the Loan Estimate needs to be sent via email to the borrower. The Loan Estimate has a list of potential closing costs the borrower may or may not incur. Any potential closing cost needs to be disclosed. The figure does not have to be accurate and it can be over-disclosed. For example, if the loan officer does not have a clue on title charges for a particular state, he or she can list $5,000 as title charges. The actual title charged can be $500 or less.

Closing Costs on Loan Estimate Versus Closing Disclosure Will Be Higher Than The Costs on the Closing Disclosure

Since the loan officer did not get an actual fee from the title company, it is always safe to over disclose the line item if not sure. You cannot under disclose by more than 10%. If the loan officer undiscloses the closing costs on the loan estimate, the loan officer is liable for the difference. Therefore, Loan Estimates are normally over-disclosed. Closing costs listed on the Closing Disclosure are normally much lower than the costs listed on the Loan Estimate.

Understanding Loan Estimate Versus Closing Disclosure

Two important documents borrowers need to know and understand are the following:

  1. Loan Estimates (LE)
  2. Closing Disclosures (CD)

There are differences between Loan Estimate Versus Closing Disclosure. The main difference between Loan Estimate Versus Closing Disclosure is that the LE is an estimated figure. The figures on the final CD are the actual figures. Another difference between Loan Estimate Versus Closing Disclosure is that the Loan Estimate has inflated figures (overly disclosed) whereas the Closing Disclosures are the actual figures.

Difference In Figures Between Loan Estimate Versus Closing Disclosure

The Loan Estimate replaced Good Faith Estimate. In general, figures in the Loan Estimate are overly disclosed and are higher than the Closing Disclosure. The reason being is that mortgage lenders need to disclose potential fees and costs that borrowers may incur. Whether they are lender costs or third-party fees such as title charges, recording fees, inspection fees, lenders do not have the true costs and fees at this early stage of the mortgage process. So what lenders need to do is overlay disclose fees. If lenders under disclose by more than 10%, the lender is liable for the shortage even though the fees may be outside third-party charges. This is the reason why some loan estimates may seem extremely high.

Are The Figures on the Initial Loan Estimate Versus Closing Disclosure Close? 

On the flip side, all fees on the initial CD are not 100% correct but pretty close. Once the initial closing disclosures are prepared, it gets sent out to the title company. The title company will go over the actual fees of buyers and sellers and ultimately get the final figures back to the lender. The cash to close by the borrower will be stated on the final Closing Disclosure. When borrowers get their Loan Estimate and disclosures after they apply for a mortgage, they should not be alarmed by the high figures stated on the LE. Most of them are junk fees and again, most fees and costs listed on Loan Estimate are overly disclosed.

Mortgage Rates On Loan Estimate Versus Closing Disclosure

The interest rate on the Loan Estimate will be higher and here is the reason why: Mortgage Rates on Loan Estimates are floating rates and not locked. The loan officer will disclose the highest rate the lender can charge. Borrowers will be qualified at the highest rates.

If a borrower is qualified at a lower rate and the actual rate is higher than the rate stated on the loan estimate, the whole loan package needs to be re-underwritten.

If the current going rate is 4.5%, the loan officer may list 5.0% on the loan estimate. The mortgage rate on the Closing Disclosure is the actual rate. Closing Disclosures are not prepared unless the mortgage rates are locked. Do not be alarmed with the Loan Estimate. Loan Officers should carefully go over line item per line item on the LE with their borrowers. Click here to get qualify for mortgage loan

Timeframe of Disclosing The Loan Estimate Versus Closing Disclosure

The Loan Estimate is disclosed within three business days of the loan officer taking a mortgage loan application. The Closing Disclosure needs to be disclosed three business days prior to the closing date. Most mortgage application packages and disclosures are over 50 pages. It is probably the largest official application package borrowers will ever encounter and need to sign.

Many first-time home buyers or those who never applied for a mortgage loan often wonder whether signing these mortgage documents will obligate them to commit to a mortgage.

Borrowers can cancel any mortgage transaction up to the date of closing. Prior to signing documents and disclosures, borrowers will need to submit their complete financial package to the loan officer such as the following:

  • two years tax returns
  • two years W-2s
  • 60 days bank statements
  • most recent paycheck stubs
  • copy of drivers license
  • copy of social security card
  • other necessary documents pertaining to their mortgage loan application

It can be pretty scary to sign and date the application package and all of the disclosure It feels like signing one’s life away. The good news is that there are strict federal and mortgage regulations that protect borrowers. Borrowers can always cancel a mortgage until the day of closing with no fees incurred.

The Start of The Mortgage Application and Approval Process

There is a lot of work for lenders to process and underwrite each individual application and run it through the mortgage process until it is complete and closed: Federal and state regulations dictate lenders cannot force borrowers to close on home loans. It is the consumer’s right to be able to cancel the mortgage application at any time during the mortgage process.

Borrowers can actually cancel mortgage applications until the date of the closing and walk away without being obligated to pay any fees. Borrowers can also transfer their application to a different lender.

Who pays the loan originator,  processor, underwriter, and support staff? Not borrowers. Lenders get paid once the loan closes. If the loan does not close, the mortgage company does not get paid. Lenders are different than attorneys. They cannot charge borrowers for the work already performed. Lenders and their staff cannot charge borrowers any fees except the appraisal fee. If during the mortgage process, borrowers decide they are not happy with the performance of the mortgage company that is underwriting the mortgage they can walk away from the mortgage process and not be liable for any fees.

Home Purchase and Refinance Mortgage Loans

On a home purchase mortgage loan transaction, the mortgage company funds the mortgage loan on the date of the closing.On a home purchase mortgage loan transaction, the mortgage company funds the mortgage loan on the date of the closing. Once borrowers sign the mortgage closing documents and the Closing Disclosure at the title company, the lender will send the wire to the title company. Funds get dispersed and the transaction is done. On a refinance mortgage transaction, the mortgage loan gets closed. But funding is delayed for three business days due to the 3 day right of rescission.

Three Day Rescission on Refinance Transactions

The right of rescission is the right for homeowners to cancel a transaction. Refinance mortgage loan borrowers has 3 business days to cancel a refinance mortgage transaction after signing the closing documents and CD.  Once the 3 days have passed, the mortgage loan is funded. Mortgage Borrowers who need to qualify for a mortgage with a lender with no mortgage overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays. 

Closing Disclosure Guidelines On Home Purchase And Refinance

All mortgage borrowers who are closing on their home loans and have applied for a mortgage on or after Oct. 3, 2015, will be required to get issued a 5-page disclosure form called the CD, or closing disclosure. The closing disclosure was created and launched to make the final disclosure, Closing Disclosure, easier to comprehend. The CD was created and implemented to make it easier to understand by consumers than the replacement of the CD, which was the HUD-1 Settlement Statement prior to finalizing the mortgage loan closing.

About The Closing Disclosure

The closing disclosure is issued after the lender has issued a clear to close. The Closing Disclosure is also referred to as the CD. Per Closing Disclosure Guidelines all of the bullet points of the mortgage terms of the loan need to be disclosed on the CD. Per Closing Disclosure Guidelines, the Closing Disclosure replaces the HUD-1 Settlement Statement form. The purpose of the creation and launching of the CD was to replace the supposedly confusing older HUD-1 Settlement Statement.

The terms with the Closing Disclosure are that it needs to be issued to the borrower at least three days prior to closing. With the HUD-1 Settlement Statement, borrowers could have received it at the closing table.

Major changes could have been made and the loan still close on the same day. That is not with the newly launched CD. Any major changes done to the Closing Disclosure need to be re-disclosed three business days prior to closing. There have been many complaints about the three-day waiting period. This holds true especially for those buyers and sellers in a major hurry. But the government says otherwise. Click here to find a lender for your closing disclosure

Mandatory 3 Day Waiting Period After Final CD Has Been Disclosed

The three day waiting period is required to protect the best interests of the consumer which in this case is the borrowers: Under the CFPB eyes, giving borrowers three days to review the CD will give them time to do comparative shopping of the final numbers and terms of their mortgage prior to closing. If they do not like the terms of their mortgage, they can cancel it and continue shopping. This is normally not the case. This is because most borrowers are so antsy when they get the CD that they cannot close on their home loan. Regulators mission in issuing a three day waiting period was for borrowers to compare their mortgage interest rates and all closing costs. It was to make sure everything was what they were initially promised inline the Loan Estimate is correct on the CD

Why Are The Closing Costs Estimates So High On The Loan Estimate Versus Closing Disclosure Figures 

The Loan Estimate is the new replacement of the old Good Faith Estimate or the GFE: Figures on the CD is most likely way less than the LE because of figures and numbers. Loan Estimate is normally overly disclosed. So what is the answer to What Is Closing Disclosure?  . The Closing Disclosure is the final disclosure prior to closing a borrower needs to get disclosed with the final numbers and terms of their home loan.

Amount Of Mortgage Loan

One of the figures on the Closing Disclosure is how much the borrower will be borrowing: This figure is listed on the first page of the Closing Disclosure. When reviewing the first page of the CD, the Loan Amount borrowers will be under the Loan Terms section. The section is categorized as loan amount. That is the loan amount the borrower will be borrowing.

Understanding Loan Estimate Versus Closing Disclosure Figures

Here are some general items on the box labeled Loan Amount that borrowers should keep in mind: There are cases where the loan amount is higher than the purchase price and/or the actual loan amount that a borrower will be borrowing. This is because the lender has added closing costs and upfront mortgage insurance premium with FHA loans to the actual Mortgage Loan Amount. The costs that have been added to the loan amount to make the loan balance higher than the borrower will be stated on top of Page 3 of Closing Disclosure and is labeled calculating cash-to-close.

Going Over The Sub-Category Under The Cash To Close on The Closing Disclosure?

Under the calculating cash-to-close, there will be a sub-category that will state closing costs financed: This figure needs to be disclosed to borrowers. This holds true even though the borrower does not have the cash to fund these costs out of pocket and okays it to be financed to the loan amount. On the top of page 5 of Closing Disclosure, there will be a section that states Loan Calculations. It will be labeled Total Of Payments. This section states the amount you will be paying after the term of the mortgage loan. Terms of loans are generally 15 year fixed rate loans or 30 year fixed rate loans. The total amount of payments will state the interest and principal of all payments you would have made. This will be significantly higher than the original loan amount you are borrowing.

What Is The Borrower’s Mortgage Interest Rate?

What Is Closing Disclosure? The mortgage interest rate on the mortgage loan will be listed on CD. Mortgage rates need to be locked prior to the Closing Disclosure. The interest rate will be listed on the section that says Loan Terms and will say Interest Rate on page one of the CD

Terms of Mortgage Closing Disclosure Form

The terms of the mortgage will be listed on Closing Disclosure. Here are the terms of your mortgage loan: Is it a fixed-rate mortgage loan? Mortgage interest rates cannot increase during the term of the loan. Is it an adjustable-rate mortgage loan? There will be an initial fixed-rate period and after the fixed-rate mortgage period, mortgage interest rates will adjust for the remaining term of the loan.

What Will My Monthly Mortgage Payment Be?

Principal and Interest Payment

The P and I is the monthly principal and interest payment of the mortgage loan

Mortgage Insurance

Mortgage insurance borrowers will be paying on a monthly basis needs to be stated on Closing Disclosure

Escrow Payments

Monthly escrow payments of property taxes and homeowners insurance will be stated on the closing disclosure

Costs of Mortgage

What will be the cost of this particular mortgage loan will be itemized on your Closing Disclosure. All mortgage loan applicants initially get a Loan Estimate when they first applied for a loan. There are estimated closing costs stated on Loan Estimate. Those fees and costs are on page 2 under the Loan Costs category. Can now compare the initial estimated costs from the Loan Estimate and compare those figures on Page 2 of the CD. Fees on the final disclosures cannot exceed more than 10% of the Loan Estimate Form. Otherwise, the lender will be responsible for the overages. Click here to apply for home loan

Exemptions on Fees per Closing Disclosure Statement

Here are exemptions on fees that can be higher than 10% or more that are on the CD than the LE: Government Recording Fees and Costs. Costs and Fees for those services that the borrower has chosen by choice of the borrower from the list of the lenders’ approved directory of recommended service providers. The service provider is not a company that is affiliated with the lender. Homeowners Premiums, prepaid interests, and initial deposits of escrows. The costs and fees on the above can be higher than the 10% and will not be covered by the lender.

Buying Down Mortgage Interest Rates

Mortgage Interest Rates can be bought down by Discount Paying Points. Can reduce interest rates with discount points. Discount Points are costs borrowers pay for buying down mortgage interest rates. Discount Points are considered part of closing costs. One discount point is equivalent to 1.0% of the mortgage loan amount. That normally reduces mortgage interest rates by about 0.25%. Discount Points show up on page two of the CD under the category of Origination Charges. Discount Points are classified as origination charges.

Closing Disclosure Guidelines on Cash To Close

Cash To Close is the amount of funds a borrower needs to bring to closing to close on their home loan. Cash To Close is stated on page 3 of your Closing Disclosure under the Calculating Cash To Close category.

Closing Disclosure Form and The Importance of Mortgage Process

The New Closing Disclosure is now in effect as of October 3rd, 2015. The Closing Disclosure was implemented and launched by the Consumer Financial Protection Bureau (CFPB), lenders nationally are scrambling to get their software systems updated. Lenders are also getting accustomed to the new mortgage laws. Laws, by their very nature, can at times leave room for interpretation, which makes enforcement not only challenging but inconsistent at times. The new closing disclosure rules for the mortgage industry have become just that. In the following paragraphs, we will discuss and cover the Closing Disclosure Form And The Importance Of the Mortgage Process.

Purpose of Closing Disclosure

There never seems an end to new mortgage regulations. The intention and purpose of the creation of the Closing Disclosure were to give home buyers a full 3 days to look over final mortgage loan documents with all the costs and fees disclosed and the bottom line given to them for review. The creation of the Closing Disclosure and the mandatory 3-day waiting period means no more last-minute closings.
If there are changes after the mortgage loan borrower receives the Closing Disclosure, a new Closing Disclosure needs to be disclosed.
There will be an additional 3 day mandatory waiting period which means more delays in the mortgage loan closing. Since the penalties for violations are so severe, the bigger the mortgage lender, the more conservative approach they are taking. It also means the more inept they are at handling the volume since their own expectations become improbable to maintain and be met.

Mandatory Waiting Period With Closing Disclosure

Some lenders are using the longest time period possible 7-12 days from final clearing to close to the actual closing date. Since there is a 3 day delivery period for mail if you don’t email it (you need to have a read receipt that you have received your documents) and a 3 day waiting period, mortgage lenders are assuming the borrowers did not get those statements emailed to them.

Here are a couple of scenarios:

  • imagine your lease expired
  • you move out on the 31st of a month
  • receive final closing disclosure for a new house on the 30th
  • would have to wait till the 6th-10th of the following month to move in(depending on the lender)
  • might have to stay in a hotel until then

Closing Disclosure Creating Havoc on Simultaneous Closings

Here is another example with the same outcome:  If you are trying to sell a home in order to buy a new one. Need the proceeds from the current sale to put as a down payment on a new home. The home seller is also using their proceeds to buy another home

How will you be able to coordinate those transactions?

Delays and More Harm To Consumers

I have seen ten different scenarios on what fees can change and cannot in order to be disclosed without delay or penalty. The lack of consistency makes knowing who is doing it right seem difficult. Every lender has its own legal staff. Many do not see it the same way. In the end, the fees for compliance have all gone up. Appraisal fees are higher, closings costs are higher, credit reports, and in the end, rates will increase to cover interest rate lock expiration.
Refinancing with an interest rate lock expiration is its own issue since they already have a 3-day free look to rescind. This now means they will have up to 9 days from final conditions to funding date.
This makes doing a 30-day lock an unlikely scenario, hence a higher rate for them. To finish on a high note, the forms are easier to read and comprehend, and professionalism has stepped up in the industry across the board. No more part-timers.

Alex Carlucci of Gustan Cho Associates and a real estate and mortgage market expert. Alex Carlucci is sought by many professionals such as real estate attorneys, real estate agents, mortgage professionals, consumers, and bankers for his extensive knowledge in compliance and industry regulations in the real estate and financial markets. Like to thank Alex for writing such informative information that is not just beneficial for our viewers but also for our team of loan processors, loan underwriters, and mortgage loan originators.

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  1. Having read this I thought it was really enlightening after the full disclosure and nothing hidden. I appreciate you taking the time and energy to put this information together. I once again find myself spending a lot of time both reading, watching, and commenting. But so what, it was still worth it!

  2. Very good write-up. I certainly love this website. Keep writing! High credibility and expert advice.

  3. My wife has a mortgage with her father who passed away in June. We are wanting to refinance the loan and take a little cash out for repairs and updates to the house to rent it out. The unpaid principal is 216134 and the rate is 4.75%. The home values in the area of California that the house is located are $400-$500k. Current credit score for her is about 580 due to two recent late payments, one from the current mortgage company from the time her dad passed till he was found and we caught up the payment, I am trying to get them to remove that from her report. The rest is mostly due to available credit balances, which we are trying to get paid down. She has been employed at her new job for just about 7 months, after taking a year off of work due to moving and then the pandemic.

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