The Closing Disclosure is considered one of the most important documents for homebuyers to fully understand when buying a property. So what exactly is a Closing Disclosure and why is it an integral part of the real estate closing process?
A Closing Disclosure is a document that is provided to borrowers by their mortgage lender at least three business days before closing. This gives borrowers time to review their finances, compare the disclosure to the loan estimate, and ask any questions they may have. The goal is to ensure that borrowers are well-informed about the financial terms and costs of the mortgage loan before finalizing the transaction.
The Closing Disclosure outlines the final details and costs associated with the loan and the home purchase transaction and includes important information such as:
It provides details about the loan, including the loan amount, interest rate, loan term, and type of loan (e.g., fixed-rate or adjustable-rate).
Monthly Payment Breakdown
It itemizes the components of the monthly mortgage payment, including principal, interest, property taxes, homeowners insurance, mortgage insurance (if applicable), and any escrowed amounts.
This section lists the closing costs associated with obtaining the loan, including origination fees, appraisal fees, title search and insurance fees, attorney fees, and other charges. It also includes a loan estimate comparison to help borrowers see any changes in costs from the initial loan estimate.
It includes other expenses related to the home purchase, such as prepaid interest, prepaid property taxes, prepaid homeowners insurance, and prepaid mortgage insurance premiums.
Cash to Close
This section summarizes the total amount of money needed to close the transaction. It factors in the down payment, closing costs, and any prepaid items. It also indicates how the funds should be provided, whether by wire transfer, cashier's check, or other acceptable methods.
The closing disclosure may include additional loan-specific information, such as whether there is a prepayment penalty or if the loan has any special features or provisions.
In conclusion, the Closing Disclosure is a document that is designed to provide transparency and ensure that borrowers understand the terms of their loan and the financial responsibilities of their transaction before closing day. It's important for borrowers to carefully review the Closing Disclosure and seek clarification with their mortgage lender on any aspects they don't understand.
Looking for other ways to prepare for a smooth and streamlined real estate closing? Read our other informative homebuyer specific blog posts and contact the Escrow Team at Willow Bend Title Company with any questions you may still have.