Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Closing Disclosure (CD)
First of all, congratulations, you will get this document just before closing.
So it is pretty awesome you have been through the wringer, you have been through the home buying process, you have shopped, you have looked, and now you are about to close.
If you are buying a new home or refinancing a mortgage, this is your new settlement statement. If you have closed a loan or refinance before 2015, you might have settled on a form called HUD-1 statement.
That form has now been replaced by closing disclosure (CD) from October 2015. Today we will take a deeper dive to understand the mortgage closing disclosure.
What Is Closing Disclosure?
The mortgage closing disclosure is a twin of the Loan Estimate (LE). Whatever the loan estimate was disclosed to you initially, we match and compare it with the closing disclosure.
Most of the time, the numbers on the CD matches the ones on the Loan Estimate (LE) and perhaps better than that offered by LE.
In the case of CD you will get more accurate fees that you are going to pay whereas in LE, you will only get an estimate of what fees you are supposed to pay.
One other quirk about the CD is from October 2015 the government has decided to offer a cooling period of three days to think about the loan instead of doing it all on the same day.
So if you have a loan signed by Friday, you are going to have the CD signed by Tuesday.
This was introduced to minimize the stress for the borrower and get an ample amount of time to go through the CD.
The Title company also gets this document from the lender when you do, and they have a lot of things to modify on the closing disclosure.
What is on The Mortgage Closing Disclosure?
Page No 1
On the very top, the section is divided into three parts. First says “Closing Information,” which shows the Date Issued, Closing Date, Disbursement Date, Settlement Agent, File Number, Property Address, and Sales Price.
The second part says “Transaction Information,” which shows information about borrowers, sellers, and lenders. The third part, “Loan Information,” shows Loan Term, Purpose, Product, Loan Type, and Loan ID.
The second section includes the loan terms in detail. Similar to a loan estimate which you might have received earlier from your lender, the closing disclosure would also display the same information.
However, in the closing disclosure, you would see the final numbers which you are receiving for your loan.
It will show you the total loan amount, the interest rate, monthly principal, and interest amount if there are any prepayment penalties and balloon payments.
The next section would show projected payments.
This section will give a detailed breakdown of your monthly payments like principal & interest, mortgage insurance, and estimated escrows and lets you know your monthly mortgage payment, including all the above components.
On the bottom of the page, you would find the information about costs at closing. This section would include two components. One is the synopsis of your closing cost, and the second one is your cash to close.
These are essential details, and they are going to be calculated for you in much greater detail on page 2 and page 3 of the closing disclosure.
Page No 2
On this page, you get the break down of the mortgage closing costs, which are mentioned on page one.
For example, if your closing cost were mentioned as $2500 on page one, here you would know exactly how they broke down those $2500, including who is being paid and what is it being paid for.
This is why page two of the closing disclosure is significant. It could be tricky to read this page with multiple columns.
On the left of the page, you would come to know what is being paid and to whom. On the right side, you could also see the borrower paid column, and that is the one that you want to focus on.
Two areas are important in there, one is borrower-paid at closing, and another one is borrower-paid before the end. Borrower-paid before the end could be things like appraisal fees, credit report fees, etc.
This page is further divided into multiple sections.
Box A will let you know about your origination charges. These are things that are charged by the lender to process your loan transaction.
Box B will show the services the borrower did not shop for. Going with the lender, you did not have any option to shop for these fees or who they used to get these services from.
Box C includes the things that the borrower did shop for. These are the things like your closing attorney, title insurance, etc. where the borrower could have a say who you chose to assist you with the closing.
Box D gives you a subtotal of A+B+C.
Box E “Taxes and other Government Fees” includes the number of fees that you are paying for recording of the deed; if your state requires transfer tax or the excise tax to be paid, you could find those in this box.
The next Box F “Prepaids” includes the things that are going to be collected by the lender or collected in the transaction to pay certain things upfront.
Box G talks about initial escrows. In this box, you can see the precise amount being collected upfront for the homeowner’s insurance and the property taxes by the lender to pay at the end of the year.
Box H shows the fees which were charged for any other service like home warranty, survey, or any other service which was provided during this transaction.
Boxes I and J will show the final amount with the addition and subtraction of the final numbers on the boxes above. The total closing cost on the first page of the closing disclosure should match the total cost on the second page.
Page No 3
The 3rd page of the mortgage closing disclosure is also significant because it shows the calculation of the cash to close, which is shown on the first page. There are two areas on this page. The first one says, “Calculating Cash to Close.”
This takes the flat fees of total closing costs, down payments, any deposits or credits, adds and subtracts them together, and derives the final cash to close which should match cash to close on the first page.
The next area says, “Summaries of Transactions.” This page includes box K and Box L, which explains cash to close in better detail. In Box K, you would see how much is due from the borrower.
It would include sales price and closing costs in total that you, as a borrower, need to bring to the table. In Box L, they are going to show the things that are paid in already.
This includes the loan amount, the deposit, and any credits that you are getting like taxes or seller credits are going to show up in this box.
After you Subtract the amount of box L from box K, you will get the amount that you need to pay at closing.
Page No 4
The next area on the page is Loan Disclosure. The first category that they will cover is the Assumption.
Most of the time, you will see “ will not allow the assumption of this loan on the original terms” checked. Only a few loans allow assumptions like VA and FHA loans.
The second category under this is a demand feature. This means that there a way for the lender to demand the money back from you faster than what you have promised them. The next category talks briefly about late payments.
In most cases, it is between 3-5 % of the principal and interest if you are paying it outside of 15 days.
The next section is the Negative Amortization. This section tells you if they are going to charge you interest upon interest or just interest upon the principal balance.
In most cases, you will find loans that are doing interest upon principal balance.
The next section says partial payments. This indicates whether or not your lender would accept partial payments from you and whether or not they would reject them, apply it to your loan or hold them into a separate account.
The final thing you need to understand on this page is that there is going to be security interest on this property, and the property address is listed in this section.
Page No 5
This page is the page where you see all the large numbers.
On any given loan on this page where it says “ Loan Calculations” on the left-hand side of this page, they will provide you with a break down of what this loan that you are taking out looks like at the very end.
If you have taken 15 years of the fixed loan, you would have paid a total amount of principal and interest to them.
It also shows total interest paid over the tenure of the loan. That amount is usually very high and ends up being anywhere up to 75-80 %.
Right underneath the loan calculations is a place where you see the contact information for the lender, realtor, mortgage broker, and settlement agent so that you can refer back to them just in case if you have any questions.
Conclusion
We would always suggest going through the mortgage closing disclosure before you finalize your loan. This contains a lot of information that might help you to determine if the lender has provided you the best option.
You would get a three day write off period to understand the closing disclosure and cancel everything if the terms are not what the lender has promised you.
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