The Closing Disclosure represents one of the most important documents in the mortgage process. This detailed statement outlines your final loan terms and itemizes every cost associated with closing. Understanding what this document contains and how to review it carefully protects you from errors and ensures you know exactly what you're signing.
What Is a Closing Disclosure?
The Closing Disclosure is a standardized five-page form that provides a comprehensive summary of your mortgage loan and all associated costs. Federal law requires lenders to use this uniform format, making it easier for borrowers to understand their loan terms and compare costs across different lenders.
Legal requirement. The Consumer Financial Protection Bureau (CFPB) created the Closing Disclosure as part of the TILA-RESPA Integrated Disclosure (TRID) rule. This regulation aims to ensure borrowers receive clear, accurate information about their mortgage before closing.
Final terms confirmation. The Closing Disclosure shows your loan's final terms, which should closely match the Loan Estimate you received when you applied. Any significant changes between these documents require explanation and may give you grounds to delay closing if necessary.
The Mandatory Three-Day Review Period
Federal law requires lenders to provide your Closing Disclosure at least three business days before your scheduled closing date. This waiting period gives you time to review the document thoroughly, identify any errors or unexpected changes, and ask questions.
When the clock starts. The three-day period begins when you receive the Closing Disclosure. If sent by mail, lenders must allow additional time for delivery. Many lenders now provide Closing Disclosures electronically, which can speed the process if you consent to electronic delivery.
Business days defined. For this requirement, business days include Saturdays but exclude Sundays and federal holidays. If your lender provides the Closing Disclosure on Monday, your earliest possible closing date is Thursday. If provided on Wednesday, and Thursday is a federal holiday, your earliest closing would be the following Monday.
Changes requiring a new waiting period. Certain changes to your loan terms trigger a new three-business-day waiting period. These include changes to your loan amount (except minor adjustments), changes to your loan product (such as switching from fixed to adjustable rate), or addition of a prepayment penalty. Minor changes to closing costs don't restart the clock.
Page One: Loan Terms and Projected Payments
Loan amount. Verify the loan amount matches your expectation. This should equal your purchase price minus your down payment, or for refinances, your payoff amount plus any cash you're taking out.
Interest rate. Confirm your interest rate matches what you locked. Check whether it's fixed or adjustable. For adjustable-rate mortgages, note when and how the rate can change.
Monthly principal and interest. This shows your base mortgage payment before taxes, insurance, and other escrow items. Verify this amount matches your expectations based on your loan amount and interest rate.
Prepayment penalty. This section indicates whether you'll face penalties for paying off your loan early. Most residential mortgages don't include prepayment penalties, but confirm this matches your understanding.
Balloon payment. This shows whether your loan requires a large final payment. Most residential mortgages don't have balloon payments, but some specialty products do. Ensure you understand if this applies to your loan.
Projected Payments Section
This section breaks down what you'll actually pay monthly, including principal, interest, mortgage insurance, and estimated escrow payments for taxes and insurance.
Initial payment amount. Your first payment amount is shown, including all components. If you're paying mortgage insurance that will eventually cancel, note when that's projected to occur.
Payment changes. If your payment will change—due to mortgage insurance cancellation, interest rate adjustments, or completion of interest-only periods—this section shows when and how much it will change.
Taxes, insurance, and assessments. Your monthly payment includes escrowed amounts for property taxes and homeowners insurance. Verify these estimates match your actual expected costs. If you know your property taxes or insurance will be different from what's shown, address this with your lender before closing.
Non-escrowed items. If you're paying property taxes, insurance, or HOA fees directly rather than through escrow, these appear separately. Make sure you understand which items you'll pay directly and budget accordingly.
Closing Costs Breakdown
Page two provides detailed itemization of all closing costs, organized into categories.
Loan costs. This section includes origination charges (fees your lender charges), points you're paying to reduce your interest rate, and services you cannot shop for (such as appraisal or credit report fees).
Other costs. This includes taxes and government fees (recording charges, transfer taxes), prepaids (homeowners insurance premiums, property taxes, prepaid interest), initial escrow payment at closing, and other costs like title insurance and settlement fees.
Services you can shop for. Some closing costs involve services where you can choose providers—title services, survey, pest inspection, or home inspection. If you shopped for these services and selected providers other than those your lender recommended, verify the costs shown match your agreements with those providers.
Seller credits. If the seller agreed to pay some of your closing costs, these appear as credits reducing your cash requirement. Verify any negotiated seller credits appear correctly.
Cash to Close
This critical section shows exactly how much money you need to bring to closing.
Down payment. Your down payment amount should match your purchase contract or refinance plans.
Closing costs financed. If you're rolling closing costs into your loan amount (common with refinances), this shows what's being financed versus paid in cash.
Deposits and earnest money. Any earnest money or deposits you've already paid reduce your cash requirement at closing. Verify these amounts match what you actually paid.
Seller credits. Seller-paid closing costs reduce your cash needed at closing.
Adjustments and prorations. For purchases, you may owe the seller for prepaid property taxes or HOA fees covering periods after closing. For refinances, you might receive credit for overpaid taxes from your existing loan escrow account.
Final cash to close amount. This bottom-line number tells you exactly what to bring to closing, typically via wire transfer or cashier's check. Confirm this amount well before closing so you can arrange funds appropriately.
Comparing to Your Loan Estimate
Your Closing Disclosure should closely resemble the Loan Estimate you received when applying. Federal regulations limit how much certain costs can increase between these documents.
Costs that cannot increase. Your interest rate (if locked), origination charges, and services where you used a lender-recommended provider cannot increase from the Loan Estimate.
Costs that can increase up to 10%. Recording fees, third-party services where you shopped for providers, and transfer taxes can increase up to 10% total from the Loan Estimate amounts.
Costs that can change without limit. Prepaid interest, property insurance premiums, amounts for initial escrow deposits, charges for services you selected without using lender recommendations, and optional owner's title insurance can vary from the Loan Estimate.
Review variances carefully. Any increases should have explanations. If costs increased beyond allowable limits without valid reasons, you can challenge them and may be entitled to credits.
Common Errors to Check
Incorrect interest rate. Verify your rate matches your rate lock agreement. Even a small error (0.125% difference) significantly affects your monthly payment and total interest over the loan term.
Wrong loan amount. Confirm the loan amount is correct. Errors here affect your monthly payment and cash needed at closing.
Missing lender or seller credits. Ensure any agreed-upon lender credits (such as for choosing a higher interest rate) or seller credits for closing costs appear correctly.
Incorrect property tax estimates. Verify the property tax amounts match your actual tax bill. Estimates that are too low mean you might face escrow shortages and payment increases later.
Escrow calculation errors. Check that your initial escrow deposit and monthly escrow amounts are calculated correctly based on your actual tax and insurance costs.
Recording and transfer fees. Verify these match the standard fees in your area. Unusual charges here might indicate errors.
Duplicate fees. Ensure you're not being charged twice for the same service, which sometimes happens with title services or other third-party fees.
What to Do If You Find Errors
Contact your lender immediately. Don't wait until closing day. If you spot errors or have questions, call your loan officer or closing agent right away.
Get explanations in writing. If your lender explains that changes are legitimate, ask for written documentation explaining why costs increased or terms changed.
Request a corrected Closing Disclosure. If errors exist, your lender must issue a corrected Closing Disclosure. Depending on what changed, this might restart the three-day waiting period, potentially delaying your closing.
Know your rights. You can refuse to close if terms differ significantly from what you agreed to. While this may delay your closing, it protects you from agreeing to unfavorable terms under pressure.
Additional Pages of the Closing Disclosure
Loan calculations. Page three shows total you'll pay over the loan term, including principal, interest, and mortgage insurance. While this number seems large, it reflects 15 or 30 years of payments.
Additional loan information. This section covers important details like whether your loan has a prepayment penalty, whether the property will secure other debts, and details about assumption of your loan by future buyers.
Adjustable rate features. If you have an adjustable-rate mortgage, this section explains when and how your rate can change, maximum rate increases, and rate caps.
Loan servicing information. This indicates whether your lender intends to service your loan or sell it to another company. Note that even if your lender plans to keep servicing your loan, they can change this decision later.
Contact information. The final page lists all parties involved in your transaction—lender, mortgage broker, real estate agents, and settlement agent. Keep this information for your records.
After Reviewing Your Closing Disclosure
Prepare your closing funds. Once you've confirmed the cash to close amount is correct, arrange to have those funds available. Most closings require wire transfer or cashier's check—personal checks aren't accepted for large amounts.
Review wiring instructions carefully. Wire fraud targeting real estate closings is common. Always verify wiring instructions by calling your title company or closing attorney at a known phone number, not one provided in email.
Gather required identification. Bring valid government-issued photo identification to closing. Some states require specific forms of ID for real estate transactions.
Clear your schedule. Plan adequate time for closing. While many closings take 30 to 60 minutes, complicated transactions can take longer. Don't schedule other important commitments immediately after.
Your Rights and Protections
Right to review. Federal law guarantees your right to receive the Closing Disclosure three business days before closing. Lenders cannot pressure you to waive this right.
Right to accurate information. You're entitled to accurate, complete information about your loan terms and closing costs. Deliberate misrepresentation or fraud carries serious legal consequences for lenders.
Right to delay closing. If you find errors or have concerns about your Closing Disclosure, you can delay closing until issues are resolved. While this may be inconvenient, it's better than agreeing to incorrect terms.
Right to cancel. For refinances of your primary residence, you have three business days after closing to cancel the loan without penalty. This right doesn't apply to purchase transactions or refinances of investment properties.
Keeping Your Closing Disclosure
Permanent record. Keep your Closing Disclosure permanently with other important financial documents. You'll need it for tax purposes, future refinancing, and as proof of your loan terms.
Tax deductions. Your Closing Disclosure helps document deductible expenses like mortgage interest, points, and property taxes when preparing tax returns.
Refinancing reference. When you refinance in the future, your current Closing Disclosure provides information about your existing loan that helps you compare new offers.
Resale documentation. When selling your home, your Closing Disclosure helps calculate your cost basis and determine capital gains tax implications.
Understanding Leads to Better Decisions
The Closing Disclosure contains complex financial information, but understanding each section empowers you to ensure your loan terms match your agreements and expectations. Taking time to review this document carefully protects you from errors and surprises.
Get Professional Guidance Throughout Your Mortgage Process
Understanding your Closing Disclosure and ensuring accuracy requires attention to detail and knowledge of mortgage lending. Our experienced loan officers guide you through every document in the mortgage process, explaining each section clearly and helping you identify any errors or concerns. We ensure you understand exactly what you're signing before closing day arrives.
Contact us today to start your mortgage journey with a team committed to transparency and your complete understanding of every step in the process.