Ultimate Guide to Disclosing Your Mortgage Closing – Forbes Advisor
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The closing disclosure is one of the most important documents you get during the mortgage process as it contains all of the details of your home loan – including the money you need to close, your interest rate, and your total monthly payment. If you examine it carefully, you can avoid surprises at the graduation table and beyond.
Nobody wants to find out in retrospect that their loan is too expensive or has a function that they did not want – like a required balloon payment. Many people suffered during the recent housing crisis because they did not understand their home loans.
Closing details are designed to help borrowers understand beforehand how affordable and how risky a mortgage is. But disclosure only works if you read and understand it.
What is a final disclosure?
A closing disclosure is a five-page form that federal law requires lenders to fill out and give to borrowers prior to closing. The form focuses on the key characteristics of the loan – such as the interest rate, loan type, loan term, and closing costs – to ensure that you understand what to agree on when taking out a mortgage, whether you are buying a home or refinancing.
Here’s how the three-day final disclosure rule works
The three day close disclosure rule requires lenders to notify borrowers of the close disclosure at least three business days prior to closing the loan. The three day rule is designed to give you ample time to review your loan terms and make sure nothing has changed significantly from the loan estimate you received when you applied for your mortgage.
Final Disclosure Example
The Consumer Financial Protection Bureau (CFPB) provides templates for final disclosure on its website. Consumers can view completed fixed rate loan and refinancing sample forms in both English and Spanish. The CFPB also provides a Final Disclosure Statement that will guide you through analyzing and interpreting each part of the form.
What is in the final information?
- Transaction date and parties involved: You will find the names of the borrower (you), the seller (if you are buying and not refinancing), the lender, and the settlement agent.
- Important information about the loan: You can see what type of loan you are getting (such as a 30 year conventional fixed rate mortgage) and how much you are borrowing. What will your interest rate and monthly payment be and can they go up? Does the loan have a balloon payment or prepayment penalty?
- Trust / deposit account: Page 1 also shows whether you have to pay home insurance and property tax for your loan with your monthly repayment and interest payment. If so, see what that cost will be. The same applies to mortgage insurance.
- Closing costs: Page 1 shows the closing cost of the loan and how much cash you will need to close it.
- Credit costs: Page 2 covers borrowing costs and other costs, dividing them into providers you could look around and those you weren’t. You will see your lending fees (points, application fee, subscription fee) and all other related costs with your loan, such as title insurance, pest inspection fee, and appraisal fee, as well as the party receiving each fee and what fees you’ve already paid for HOA fees.
- Cash payments, cost changes: Page 3 shows the cash you will need to close, the differences between the credit estimate and the closing details, and the reasons for any differences. This section also shows your down payment and home purchase security deposit (as opposed to refinancing).
- Adoption: Page 4 shows whether your loan is tenable. If you sell your home, can the next owner take your loan or do they have to take out a new one? Usually it is the latter and the credit is unacceptable. The Veterans Administration (VA) loans are an exception.
- Interest on arrears, negative amortization, partial payments: Page 4 also states what your late payment interest is and when it will apply, whether your credit balance may increase (negatively amortize) if you make all of the monthly payments that you plan to make, and whether your lender will accept partial payments.
- Total cost: Page 5 shows the total amount you will pay in principal and interest over the life of your loan. It warns you that you may not be able to refinance later. In other words, make sure you like this loan as you may get stuck on it.
- Consequences of foreclosure: This section tells you if you will be held liable for an unpaid mortgage balance if your lender has to foreclose and sell your home and the proceeds from the sale do not cover your debt.
- Important contacts: You will also find contact information for the lender, the settlement company, and (if applicable) the real estate agent.
Changes to the final information
If certain things change about your loan after you receive your closing report, your lender will need to give you a new, updated closing report and a new three day review deadline. The lender is required to provide you with a new disclosure if:
Major changes in your credit or financial situation can also trigger a new credit estimate and new underwriting.
Frequently asked questions (FAQs)
What should I do with my graduation report?
Compare it to your loan estimate. If fees have gone up, find out why. One reason the government requires lenders to give borrowers the credit estimate and close disclosure forms is to keep the lenders honest and prevent them from promising you a low interest rate or fee and then doing them at the last minute to increase.
What should I do if I find an error in my graduation report?
Contact your lender and / or settlement agent as soon as possible to avoid delaying your close. Whether the mistake is a typo on your behalf or a different interest rate than expected, it is important to fix the problem as soon as possible to avoid or minimize delays in closing.
What costs do I have to worry about if I want to switch between my credit estimate and final disclosure?
If you’ve previously locked your interest rate and your interest rate lock hasn’t expired, your interest rate shouldn’t have changed unless your finances have changed. Mortgage broker or lender fees, services you weren’t allowed to buy, and transfer taxes shouldn’t have changed either. Admission fees and certain third party fees must not have increased by more than 10%.
Does Final Disclosure Mean I’m Approved?
If your debt goes up or your income goes down before the transaction is completed, you risk losing your loan approval. If your car dies and you need to take out a loan to buy a new one, don’t do so until your loan is funded. Rent a car or find another source of transportation.
Do I have to take out the loan after I have signed the final declaration?
No. Signing the closing statement only confirms that the lender gave it to you. Remember that you are the customer and that you are entering into a contract for a term of up to 30 years. You have the right to take your time and get answers to your questions. You don’t need to go through the transaction if you are not comfortable doing it.
A delay or cancellation can have consequences. When completing a purchase transaction, you might lose your bona fide deposit to the seller if you cancel or you owe them money if you postpone the close. When your interest freeze period expires, your interest rate can go up or down if your close is postponed.
What happens after the closing disclosure?
Three business days after you received your closing report, use a cashier’s check or wire transfer to send the clearing company the money that you need to take to the closing table, such as bank transfer. B. Your down payment and closing costs. You also sign the papers to finalize your loan.
Then the lender finances the loan. You will receive a final statement after the transaction has been completed. If the financial statement disclosure overestimated the cost, you will be reimbursed the difference.