When you take out a mortgage on a home, the lender is legally required to give you a Closing Disclosure at least three business days before you close on the loan.
This document provides essential information about your home loan. If something in the document is incorrect, there could be delays in closing.
You may be wondering what information is on a Closing Disclosure and how you can check it for errors. Thankfully, the document is standardized, which makes it straightforward to understand. Here’s what you need to know.
- What is the Closing Disclosure form?
- Is a Closing Disclosure the same as a Loan Estimate?
- Checking your Closing Disclosure for errors
- What’s next? Does a Closing Disclosure mean you are clear to close?
1. What is the Closing Disclosure form?
The Closing Disclosure form replaced the Truth in Lending disclosure and HUD-1 Settlement Statement in 2015. The five-page Closing Disclosure form includes the final financial details about the mortgage you’re taking out to close on your home.
It includes a long list of information that you need to verify as quickly as possible to avoid delays in your closing date. If any information is incorrect, the document will need to be corrected. The Closing Disclosure must be provided to you at least three business days before closing. Last-minute changes to the form could result in a delay to your closing date.
2. Is a Closing Disclosure the same as a Loan Estimate?
A Closing Disclosure is not a Loan Estimate. Lenders provide a Loan Estimate after you apply for a mortgage to give you an estimated cost to close your mortgage loan. Some of the numbers in a Loan Estimate are likely to change before you close on your home.
You can compare the information on your Loan Estimate to your Closing Disclosure to see how close the estimate was and to see if certain costs exceeded the stated amounts. That said, some costs are out of the mortgage company’s control and may not match the amounts on the Loan Estimate.
3. Checking your Closing Disclosure for errors
Once you receive your Closing Disclosure, it’s vital to review the document line by line. Verify that all numbers and terms are exactly as you expected them to be. While every bit of information on the form is important, here are a few items you may want to pay special attention to.
- Your name: Check the spelling and make sure it appears exactly as you prefer.
- Loan information: Verify that your loan term, purpose, product type and loan type are correct.
- Loan terms: Verify that the loan terms — including the loan amount and interest rate — are what you agreed to.
- Prepayment penalties: Make sure this part of your Closing Disclosure properly states whether you have a prepayment penalty.
- Balloon payments: Make sure this part of your Closing Disclosure correctly states whether your loan has a balloon payment.
- Estimated total monthly payment: Your total monthly payment includes principal and interest payments and may also include mortgage insurance and escrow amounts. Make sure these amounts are what you expected.
- Costs at closing: Understand the total closing costs, detailed on Page 2, that you have to pay. Also verify that all amounts are what was agreed upon or are calculated correctly.
- Services you did not shop for: Compare these loan costs to your Loan Estimate to make sure no new fees were added and that the costs are similar to those detailed in the Loan Estimate.
- Seller credits: If a seller agreed to provide a credit, ensure the amount is what was agreed upon in the contract.
- Escrow account: Verify your loan has an escrow account if you agreed to have one and that the information listed matches the costs you expected to see.
It can help to compare the numbers on your Closing Disclosure to your Loan Estimate. This can help you ensure that your lender didn’t exceed any costs that cannot change.
Unfortunately, errors may occur on the Closing Disclosure form — that’s why you need to review it. If you do find an error, your lender should provide a new Closing Disclosure form that would restart the three-day period. This could delay your closing date.
4. What’s next: Does a Closing Disclosure mean you are clear to close?
A Closing Disclosure is not technically the same as being declared clear to close, but the disclosure typically comes after you have been cleared. After reviewing your Closing Disclosure, you can look forward to a final walkthrough of the home and closing day itself. Receiving your Closing Disclosure basically indicates you’re almost there, but not quite done with the mortgage process.
Your loan officer may check your credit again before the mortgage closes. Any drastic changes in your reports could result in a delay of your closing date or worse. Getting your Closing Disclosure does not mean you are “bulletproof” before closing. For example, you should probably avoid maxing out your credit cards or opening new lines of credit, which could damage your credit scores on the way to closing day.