Understanding the Closing Disclosure Statement
Since October 3, 2015, real estate closing agents have been required to provide a copy of a Closing Disclosure Statement to all parties involved in the transaction, three days prior to the closing date. This form replaced the HUD-1 statement that had formerly been used for all federally backed mortgages.
What is the Closing Disclosure Statement?
The Closing Disclosure Statement is used to communicate all of the terms and conditions of a mortgage. It should accurately reflect the terms outlined in the good faith estimate that is provided after your loan is approved. It is very important to closely review the statement to ensure that your personal information is correct and that all the details of the loan are accurate. These are the terms and conditions which are accepted by all parties at closing. You will have three days to review the Closing Disclosure Statement, and if there are any corrections that need to be made, the clock will restart on the three day review period for the corrected disclosure statement.
What’s on each page of the Closing Disclosure Statement?
The heading of Page 1 shows information about the property, the sale price, the addresses of the seller and buyer, and the name of the lender along with info about the loan. The body of the first page indicates the terms of the loan, the projected monthly payments, and the costs at closing (these are explained on later pages).
Page 2 shows the breakdown of closing costs by who pays them—the buyer or seller—indicates whether or not the costs are paid at or before the closing, and explains the specific reason for each closing cost line item. The second page also breaks down other costs and who pays them. These fees can include taxes, advance payments for escrow—insurance, property taxes, etc.—and other fees, such as real estate commissions.
Page 3 of the Closing Disclosure Statement explains how the cash to close has been calculated for both the borrower and the seller. It also has a table comparing the cash to close from the good faith estimate, to the amount that will actually be needed for closing.
Page 4 provides more details about your mortgage loan, such as whether or not your lender will allow another person to assume the loan in the future, whether or not your home loan has a demand feature that requires early repayment of the loan, and whether or not your lender will accept partial payments. This page also explains the breakdown of your escrow costs for the year and per month. It also explains how much you’re paying ahead for these costs at closing and if there are any regular expenses that are not included in escrow.
Page 5 discloses the total costs of your home loan, including how much you’re financing, how much you’ll pay in interest, and the total amount you will end up paying under the terms of the mortgage loan. This page also has other loan disclosure information and the contact information for individuals involved in the closing (the lender, the mortgage broker, the real estate agent(s), and the settlement agent). You will also have to sign on the fifth page to confirm receipt of the Closing Disclosure Statement.
While this document may seem confusing because of the extensive amount of information it contains, it is all very important info, and it’s critical to review the statement thoroughly prior to your closing to ensure that nothing has changed without justification or explanation. If you have any questions about the information which appears on your statement, be sure to ask your attorney or mortgage lending professional for clarification.
Do you have questions about the mortgage loan closing process, including the Closing Disclosure Statement? Contact Torrance Mortgage Lender Shawn Carvin today. Shawn is a licensed California mortgage professional with nearly 30 years experience in the financial services industry, half of that focused on mortgage lending. Shawn works with clients throughout the greater Los Angeles area including Torrance, the Palos Verdes Peninsula, the Beach Cities, other South Bay communities, and beyond.