By Melissa Dorman, April 9, 2021
By Melissa Dorman, April 9, 2021
You find a house you love. You get into contract. You survive inspections, appraisal and the laundry list of underwriting requirements. Congrats, the end is in sight! You’re well on route to becoming a home owner.
If you are using a typical mortgage mortgage, the closing disclosure (CD) is one of numerous disclosures you’ll review during the home-purchasing process. Other than the heap of papers you’ll sign on important day of closing, the CD is the last paperwork you’ll get beforehand. Despite the fact that they’re intended to be a basic outline of your loan terms, these five pages of numbers and legal jargon can easily be confounding, particularly in case you’re a first-time home buyers. We should discuss what it is, the reason it’s significant, and how to check for any blunders.
The CD is a statement given by your lender a couple of days before you close. The five-page summary includes the following lending information into one report:
This is your last overview of the loan prior to signing your mortgage and closing. You need to ensure you completely comprehend your end expenses and regularly scheduled installments—and whether they are liable to change, such as an adjustable rate mortgage—before you tie yourself in a legally binding way. When you sign the closing documents, you’re limited by the terms and conditions until you pay off the loan, either by refinancing, paying it off, or selling the property.
The Truth in Lending Act was put in place to protect borrowers by giving them as much information as possible when committing to a loan. In line with this, your lender is legally required to give you the closing disclosure at least three business days before closing so you have time to look for unforeseen changes or errors. (Prior to the three-day rule being issued in 2015, these final loan terms were given at closing, which could result in rushed decisions or overlooked mistakes.)
Indeed it does! After going under contract on a house, an underwriter will review all of your qualifications—like your financial information, credit history, and employment verification—as well as order an appraisal and title check for the property in question. If all goes well, the underwriter gives your loan final approval and you are “clear to close.”
The closing disclosure includes the final numbers that are based on loan approval, so getting a closing disclosure means you are, in fact, clear to close.
Technically, things outside of the lender’s control can change even after receiving a closing disclosure, like the cost of homeowner’s insurance for escrow. Lender fees, however, cannot change after the closing disclosure is issued.
The lender must provide a new CD if loan details are altered due to a “change in circumstances,” such as a change in your credit score or down payment amount. Another three-day window is only required if:
First and foremost, compare your closing disclosure to your original loan estimate and check for any undiscussed alterations. The two documents won’t be exactly the same, but there shouldn’t be any glaring differences.
Next, check for any simple errors, like spelling mistakes in your name. These issues are rare, but they will need to be fixed prior to closing.
Finally, consider whether you are truly prepared to make these monthly payments and commit to the loan as it is detailed on the closing disclosure. Hopefully, you’ve already done your due diligence when shopping for the loan, so this shouldn’t be a problem. If you realize you don’t want to buy the house so late in the process, you can technically walk away—but you’re going to lose your earnest money and cause a lot of problems for everyone involved.
If there is an error on the closing disclosure, contact your lender to work through the changes as soon as possible. The document will need to be revised and reissued, which may incite another three-day window and push back your closing date. If this is the case, your purchase contract might also need to be amended.