One of the final steps in buying a home with a conventional loan is reviewing and signing the closing disclosure (sometimes also called CD). First time home buyers in particular may feel overwhelmed at the volume of documents that require approval and signature, so to help make the process less overwhelming we are breaking down everything you need to know about a closing disclosure below.
What is a Closing Disclosure?
A closing disclosure is a five-page form that is designed to outline all of the terms of your loan. It will be issued to you (usually via encrypted digital copy) a few days before closing, after the majority of the escrow process has been completed. This will take place after your home appraisal, home inspection, any agreed upon repairs, all negotiations, and underwriting has given final approval.
The details outlined in your closing disclosure will give you all the information about your loan in one place, including:
- Loan amount (also called the principal)
- Mortgage insurance (also called PMI or private mortgage insurance)
- Property taxes
- Interest rate (also called APR or annual percentage rate)
- Fees, closing costs, origination charges
- Purchase points, if applicable
- Prepayment penalty, if applicable
- Escrow account information
- Monthly payment amount
- Total sum of financing charge over the life of the loan (total interest paid at the end of the 15 or 30 years)
The first page of the document will give you an overview of the information you need, acting as a sort of cheat sheet if you need something to reference. The document as a whole will include every relevant item, and is required to be issued to you in advance to give you time to be sure you understand the documents you will be signing at closing.
The Three Day Rule
In 2015, the Three Day Rule was put into place to protect borrowers from tying themselves to a loan without understanding the terms. This law stipulates that a lender must issue a closing disclosure to the borrower at least three business days before closing, allowing the borrower to carefully review all the terms of the mortgage.
Before this rule was put in place, many lenders gave borrowers the closing disclosure at closing, resulting in a rushed process that was to the detriment of both lender and borrower in many cases. While you are legally allowed to waive your Three Day Rule rights, be cautious about doing so. This rule is in place to protect and benefit you, and your right should only be forfeited in emergency circumstances where you are fully confident about your understanding of the loan terms.
What to Do with your Closing Disclosure
When you receive your closing disclosure, pull it up with your initial loan estimate and compare each item. Read through the entire closing disclosure to make sure everything looks right. Now is the time to contact your loan officer if you have questions about any of these terms.
Even if you aren’t sure there is anything wrong, it is always wise to check in with your loan officer if you don’t fully understand the disclosure. Don’t worry about looking like you don’t know what you’re talking about. Your loan officer is there to help, and all high quality mortgage professionals are trained to educate borrowers on the complex process of home buying. Remember, your loan officer is there to help!
Why You Should Carefully Review Your Closing Disclosure
Buying a house is one of the most influential financial decisions you will make. The details of your loan disclosure outline one of the most significant factors in your financial health for the time you own this home, so it is in your best interest to be sure you understand all of the rates, fees, and terms.
Before tying yourself legally and financially to the home through the mortgage, take your time in the comfort of your own home to familiarize yourself with the details. While you can still ask questions at closing, you risk delaying the sale of the home. Take advantage of the closing disclosure by reviewing it in detail, for your own benefit and for a more efficient process.
To find out more about the home buying process, contact us any time! I handle all types of loans and mortgages in Roseville CA and surrounding areas.
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