Closing Disclosure: What You Need to Know

One of the most important and detailed forms you’ll review before you close on a home loan is your closing disclosure. It contains five pages of information specifying the final terms and closing costs related to your mortgage, and it’s your last chance to verify that all of the numbers are correct before your closing.

Knowing your rights and the rules associated with your closing disclosure will help you fix any errors and give you time to ensure the loan is in your best interest.

What is a closing disclosure?

A closing disclosure is a five-page legal document that details the final terms of the mortgage loan you’re about to borrow. You’ll find information about your interest rate, closing costs, the terms of your loan, your monthly payment and many other valuable pieces of information about your mortgage.

Unlike the loan estimate received at the beginning of the loan process, the closing disclosure is a final accounting of the dollars and cents for you to review before you sign your final mortgage paperwork at your closing. Once you’ve reviewed and approved your closing disclosure, you’re ready to complete the mortgage process, close your loan and get the keys to your home or finish your refinance.

Why your closing disclosure is important

A closing disclosure gives you one last opportunity to make sure you’re comfortable borrowing based on the terms of the loan you originally applied for. It also holds the lender accountable for the accuracy of its initial quotes and, in some cases, requires the lender pay out of its pocket for fees that weren’t properly disclosed.

It also gives you a mandatory, three-business-day period to review all of the numbers and make sure you’ve received credit for anything you’ve prepaid for (like appraisal fees or earnest money deposits), and that any seller or lender credits have been applied to the amount you owe at closing.

How the closing disclosure 3-day rule works

To ensure you have enough time to review all of the numbers before signing your final paperwork, lenders are required by law to provide you with a closing disclosure at least three business days before your closing date. The waiting period was put into effect by the Consumer Financial Protection Bureau (CFPB) in 2015 so homebuyers weren’t pressured into committing to loans they couldn’t afford based on terms they learned about at the closing table.

Homebuyers can take the time to review the paperwork with their loan officer and, if need be, with an attorney or a regulatory agency if they believe they aren’t getting the terms they originally applied for. It’s important to budget extra time for this mandatory waiting period if you’re buying a home to make sure you close on time.

Closing disclosure form sections

The primary purpose of the closing disclosure is to compare it to your initial loan estimate to verify the information is similar. There shouldn’t be any major changes and the figures should be close to your loan estimate, except some minor adjustments for interest, property taxes, homeowners insurance and prepaid interest prorations. The CFPB provides a detailed closing disclosure explainer if you want an in-depth explanation of every single page.

We’ve highlighted the things you should know on each page when you’re finalizing your mortgage.

Page 1

The first page of your closing disclosure provides a snapshot of the most important features of your mortgage, including:

Loan information. This section should match your loan estimate regarding the loan term, loan purpose and loan program (conventional, FHA, VA or USDA).

Loan terms. Pay close attention to this section: It features information about your final loan amount, interest rate and monthly payment amount with just the principal and interest calculation.

Projected payments. The projected payments section reflects your total final principal, interest, taxes and insurance (PITI) payment at the time of closing, and then over the life of the loan. The “estimated escrow” amount includes your property taxes and homeowners insurance if you choose to have them included in your payment.

The projected payment may also include mortgage insurance if you’re making less than a 20% down payment on a conventional loan or taking out a Federal Housing Administration (FHA) loan. The most common type of mortgage insurance is private mortgage insurance (PMI), which protects conventional lenders from losses if you default on your payments. You’ll pay two types of FHA mortgage insurance with an FHA loan: an upfront mortgage insurance premium (UFMIP) and annual mortgage insurance premium (MIP) that is part of your monthly payment.

Costs at closing. This section details your “cash to close,” with a basic breakdown of any costs the seller or your lender is paying on your behalf. You’ll cut a cashier’s check or wire this amount to pay for any remaining closing costs and down payment due on the loan. If the amount doesn’t look right, check the itemizations of all of the credits and charges on Page 2.

Page 2

This page is similar to the old HUD-1 settlement statement borrowers used to review figures on mortgages taken out prior to 2015, and provides an itemized accounting of all the costs of your transaction. The loan costs detailed in sections A, B and C are restricted by federal law.

Costs that can’t change after you sign a closing disclosure

There should be no difference when you compare the following fees to your original loan estimate. If there is, you should see a credit from your lender to pay for it. Fees that can’t change after your closing disclosure has been issued include:

• Origination
• Mortgage points
• Appraisal
• Credit report
• Flood monitoring
• Flood determination
• Tax monitoring
• Tax status research
• Transfer taxes

Costs that can change after you sign a closing disclosure

The other costs are divided up into two categories: Those that can increase by 10% and those that can increase by an unlimited amount.

The fees that are limited to a 10% increase include:

• Recording fees
• Pest inspection fee
• Survey fee
• Title insurance
• Title settlement agent fee
• Title search costs

There are no limits on how much the following fees can increase from the original quote:

• Homeowners insurance premiums
• Property taxes
• Prepaid interest
• Homeowners association (HOA) fees
• Home warranties

Page 3

This information is an extension of Page 2, and provides a summary of all of the itemizations on that page. If you’re receiving any credits from the seller, real estate agent or your lender, they should show up in section L under the “Paid already by or on behalf of borrower at closing” heading.

Page 4

You’ll find a lot of small print related to features of your loan; a few items you should take note of are:

Late payment fee. This page explains when your payment is considered late and the fee you’ll pay if it is.

Escrow account. If your homeowners insurance and property taxes are included in your payment, this section breaks down how much will be collected at closing and monthly to keep enough funds in your escrow account to pay your property-related bills when they come due.

Page 5

Your annual percentage rate (APR) is shown on this page. If it’s higher than your interest rate, don’t worry because it’s simply a measurement of your closing costs over your loan’s repayment term, expressed as a percentage. There are some other disclosures that explain what happens if you default on your payments and face foreclosure, and a list of everyone involved in the transaction in case you have questions after your closing.

Closing disclosure vs. loan estimate: What’s the difference?

A loan estimate is a form that details the lender’s best guess about the loan terms you qualify for, based on the preliminary information you provide on a loan application. A closing disclosure is a fully vetted version of the loan estimate, with all the fees due from you and owed to you accounted for.

Frequently asked questions

Does a closing disclosure mean I’m approved?

In most cases, yes. A lender won’t typically issue a closing disclosure if you’re not likely to close.

Does a closing disclosure mean I’m clear to close?

No. The lender may still need to finalize your loan by checking employment, reviewing your credit to make sure you didn’t open new accounts and verifying all of the figures for your escrow account.

Is the closing disclosure the last step?

Not quite. The lender still needs to prepare your closing documents and coordinate the final signing with a title company or attorney.

Why are the costs and interest rate on my closing disclosure different from my loan estimate?

There are usually only three reasons this may be the case:

• Your rate wasn’t locked in when you submitted your final application
• Your credit scores dropped on the final credit report
• Your home appraised for less than the sales price or the refinance estimate

Is there anything that could require a new 3-day waiting period? 

Yes, although it’s fairly rare. Three things could result in a new three-day CD period:

• Your APR increases by more than 0.125% on a fixed-rate loan or more than 0.25% on an adjustable-rate mortgage (ARM)
• Your lender assesses a prepayment penalty (not common with standard loan programs)
• You switch loan products (from a fixed-rate loan to an ARM)