What Is Closing Disclosure?
This BLOG On What Is Closing Disclosure Was Written By Gustan Cho NMLS 873293
All mortgage borrowers who are closing on their home loans and have applied for a home loan on or after Oct. 3, 2015 will be required to get issued a 5 page mortgage loan 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 and understand by the borrower 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 and it states all of the bullet points of the mortgage terms of the loan that the borrower will be closing. 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 is that it needs to be issued to the borrower at least three days prior to the closing of their mortgage loan closing. With the HUD-1 Settlement Statement, borrowers could have received it at the closing table and 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, it needs to be re-disclosed three business days prior to closing. There has been many complaints about the three day waiting period, especially for those buyers and sellers in a major hurry, but the government says otherwise and that 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, it will give them time to do comparative shopping of the final numbers and terms of their mortgage loan prior to closing where if they do not like the terms of their mortgage, they can cancel it and continue shopping. This is normally not the case 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 and make sure everything was what they were initially were promised and in line with the Loan Estimate they initially. 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 figures and numbers on the 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 The Borrower Is Borrowing
One of the figures on the Closing Disclosure is how much the borrower will be borrowing and this figure is listed on the first page of the Closing Disclosure. When reviewing the first page of the CD, the Loan Amount the borrower will be borrowing will be under the Loan Terms section. The section is categorized as Loan Amount. That is the mortgage loan amount the borrower will be borrowing.
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 of the home purchase and/or the actual loan amount that a borrower will be borrowing because the mortgage lender has added closing costs and upfront mortgage insurance premium with FHA Loans to the actual Mortgage Loan Amount
- The costs that has been added to your loan amount to make the loan balance higher than you are borrower will be stated on top of Page 3 of your Closing Disclosure and is labeled Calculating Cash To Close. 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 even though the borrower does not have the cash to fund this costs out of pocket and okays it to be financed to the loan amount.
- On the top of page 5 of your Closing Disclosure, there will be a section that states Loan Calculations and will be labeled Total Of Payments. This section states the amount you will be paying after the term of your mortgage loan. Terms of loans are generally 15 year fixed rate loans or 30 year fixed rate loans. The total amount of your payments will state the interest and principal of all payments you would have made which will be significantly higher than the original loan amount you are borrowing.
What Is The Borrower’s Mortgage Interest Rate?
What Is Closing Disclosure? Your mortgage interest rate that you will get on your mortgage loan will be listed on your CD. Mortgage rates needs to be locked prior to the Closing Disclosure. Your interest rate on your mortgage will be listed on the section that says Loan Terms and will say Interest Rate on page one of your CD.
Terms Of Your Mortgage
The terms of your mortgage will be listed on your Closing Disclosure.
Here are the terms of your mortgage loan:
- Is it a fixed rate mortgage loan? Your mortgage interest rates cannot increase during the term of your loan.
- Is it an adjustable rate mortgage loan? There will be an initial fixed rate period and after the fixed rate mortgage period, your mortgage interest rates will adjust for the remaining term of your mortgage loan.
What Will My Monthly Mortgage Payment Be?
On page one of your Closing Disclosure, there will be a breakdown of your mortgage payments.
Here is the breakdown of your monthly mortgage payments on page one of the CD:
- Principal and Interest Payment: The P and I is your monthly principal and interest payment of your mortgage loan.
- Mortgage Insurance: Your mortgage insurance that you will be paying on a monthly basis needs to be stated on your Closing Disclosure.
- Escrow Payments: Your monthly escrow payments of your property taxes and homeowners insurance will be stated on your 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 your Loan Estimate. Those fees and costs are on page 2 under the Loan Costs category. You 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. 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 and that service provider is not a company that is affiliated with the mortgage lender.
- Homeowners Premiums, prepaid interests, and initial deposits of your escrows.
The costs and fees on the above can be higher than the 10% and will not be covered by your mortgage lender.
Buying Down Mortgage Interest Rates
Mortgage Interest Rates can be bought down by Paying Points. You can reduce your interest rates with discount points. Discount Points are costs that you pay for buying down your mortgage interest rates and are considered part of your closing costs. One discount point is equivalent to 1.0% of your mortgage loan amount and that normally reduces your mortgage interest rates by about 0.25%. Discount Points shows up on page two of your CD under the category of Origination Charges. Discount Points are classified as origination charges.
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 Calculating Cash To Close category.