Whether you’re buying a new home or are looking to refinancing, before your mortgage becomes a binding agreement, you’ll receive what is called a closing disclosure. Your closing disclosure will include all the nitty-gritty details of your mortgage, from the borrowed amount to interest rates, closing and everything in between. You’ll want to read this document carefully before signing the dotted line.
Closing disclosures, and really any legal document, can be tricky to decode — especially if you’ve never read one. Fear not! Before getting overwhelmed and potentially missing crucial details of your loan, this article will break down each part of a closing disclosure. Still need help? You may want to hire a real estate professional to help go over any documents involved in buying or refinancing a home.
A closing disclosure is the final document given to a borrower by their lender that encapsulates all details of their loan. This is what you’ll look over and sign to make your mortgage official. The form is usually about five pages long and has information about your purchase price, interest rate, fees, taxes, and all other terms and expenses. You are given three days to look over and sign your closing disclosure. This gives you time to correct any mistakes or items that don’t align with the original agreement.
Understanding your closing disclosure is imperative. Reading and understanding the fine print will help avoid any discrepancies or unfair clauses. We’ve broken down each page of a closing disclosure, as well as some key terms to remember:
The loan term section discusses how long you’ll be paying off your loan and how much you’ll be paying each month. It’s broken down by the following terms:
On page two, you’ll usually find other loan costs and a section called “services borrower didn’t shop for” and “services borrower did shop for.”
There aren’t many new terms to decode here, but page three will break down details about closing. It will include how much money you’ll need and any other fees or adjustments. Take a careful look at each item to make sure everything is correct and aligns with what you agreed on with the seller.
The fourth page discusses late fees, partial payments and your escrow account.
The final page of your loan disclosure will get into more detail about your interest, as well as what happens if your home goes into foreclosure, or you decide to refinance your mortgage.
No, a closing disclosure does not always mean your loan is approved. You may find incorrect information or something you want to change. Your lender also has the opportunity to back out if they find something new that makes them change their mind.
If all goes well and you sign and agree to the closing disclosure, the underwriter at your lender still needs to sign off. Once the lender signs the agreement, then all of the details you went over will be approved and binding.
As we mentioned earlier, the closing disclosure three-day rule means you have three days after receiving your closing disclosure to go over the terms and either sign or revise with your lender. Take advantage of these three days to go over each line item and all of the terms align close to the loan estimate. Using a real estate professional to help go over the closing disclosure is helpful.
Now that you’re armed and ready to take on your disclosure agreement, you should feel comfortable signing the dotted line once you’ve ensured that everything is in place.
