Just Two Closing Documents Among Many
No doubt youll see many other documents during the loan closing. Lots and lots of them.
But these two legally binding and required documents bookend the loan process: The Loan Estimate comes after you submit an application with a lender, and the Closing Disclosure form arrives when youre nearing the get-a-mortgage finish line.
Initial Cd: Super Important
Once the initial underwriting approval is issued the Processor will send a request to the Disclosure Team to create the initial Closing Disclosure . All parties on the loan must e-sign the Initial CD.
Federal law mandates the Initial Closing Disclosure be signed three business days before closing. A delay in signing the Initial CD will result in a delayed closing.
Example 1: A loan closing on a Thursday must have the the Initial Closing Disclosure e-signed before midnight on Monday to satisfy the three-day waiting period.
Example 2: Its important to note that Sundays and federal holidays do not count as waiting days. Therefore, a loan closing on a Tuesday requires the Initial CD be e-signed by Friday to satisfy the three-day waiting period.
Review The Document With A Professional
Consider going over the disclosures with your REALTOR®, real estate agent or real estate attorney. All of them should be working with your best interest in mind, so they should warn you of any red flags they find. Theyre also more knowledgeable about the real estate industry, so theyll be able to define relevant terms, explain what each disclosure means and tell you what should be of major concern and what future cost or work certain issues may entail.
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Liens On The Property
A lien on a property is ownership rights given to a lender should the property owner not repay their debt to the lender. If there is a lien on the property, the seller must get the lien holders permission to sell the property. If its granted, the seller must disclose any existing liens on the property.
With a lien on the property, the new homeowner could essentially lose their home to the lienholder if a debt isnt paid back. Buying a home with an existing lien is very high-risk and typically not advised.
Whats Important To Know About The Loan Estimate
- A Loan Estimate isnt an indication that your loan application has been approved or denied.
- You dont need to have a signed contract for the property that youre receiving a Loan Estimate for.
- Youre not obligated to pay an application fee other than a reasonable fee for the lender to run a credit report.
- If your interest rate or loan details change, you may receive a revised Loan Estimate.
- An interest rate on your Loan Estimate is not a guarantee. Some lenders may lock your rate as part of issuing a Loan Estimate but others may not.
- If you choose to move forward with the loan and lender, you must convey your intent to proceed.
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What Is The Closing Disclosure 3
Your lender is required by law to give you the standardized Closing Disclosure at least 3 business days before closing. This is what is known as the Closing Disclosure 3-day rule. This requirement is thanks to the TILA-RESPA Integrated Disclosures guidelines, which went into effect on October 3, 2015.
Prior to these rules, home buyers received two documents: the HUD-1 Settlement Statement and the Truth in Lending Disclosure Statement . There were two problems with these previous documents: they were confusing, and they were only provided at closing which offered home buyers very little opportunity to review and make sense of them.
The Closing Disclosures 3-day rule now gives you plenty of time to go over the final terms of your loan before you sign your closing documents.
Because of the 3-day rule, the sequence of events leading up to your receiving a Closing Disclosure should be relatively predictable. Lenders are generally careful to avoid issuing a Closing Disclosure before they are certain about what the closing costs and fees will be they dont want to have to change the agreement and wait another 3 business days.
This means that loan approval, home appraisal, insurance and the calculation of all third-party fees will be completed before the Closing Disclosure is issued to you. The timeline will therefore look like this:
- All costs are calculated.
Weve broken down each component of the Closing Disclosure below.
Checking Your Closing Disclosure For Errors
Once you receive your Closing Disclosure, its vital to review the document line by line. Verify that all numbers and terms are exactly as you expected them to be. While every bit of information on the form is important, here are a few items you may want to pay special attention to.
It can help to compare the numbers on your Closing Disclosure to your Loan Estimate. This can help you ensure that your lender didnt exceed any costs that cannot change.
Unfortunately, errors may occur on the Closing Disclosure form thats why you need to review it. If you do find an error, your lender should provide a new Closing Disclosure form that would restart the three-day period. This could delay your closing date.
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Final Vs Preliminary Closing Disclosure
Youll receive the preliminary Closing Disclosure at least three business days before closing. Your lender may also send a preliminary disclosure at certain points in the closing process if most of the costs have been accounted for and you request an updated estimate of the cash to close, for example. These costs are still considered preliminary because they may change by the closing date.
You sign the final Closing Disclosure at closing. This document contains the finalized loan terms along with the closing costs.
Its a good idea to ensure all parties review and agree on these terms every step of the way otherwise, you could be in for an unpleasant surprise at closing. One homebuyer in Virginia told us their processor didn’t properly review the docs, which resulted in a higher-than-expected closing cost.
Page Five: Interest Foreclosure And Refinancing
The final page of your loan disclosure will get into more detail about your interest, as well as what happens if your home goes into foreclosure, or you decide to refinance your mortgage.
- Annual percentage rate :Your shows you the bigger picture of how much it costs to take out your loan and is usually higher than your interest rate. It includes your interest rate, in addition to broker fees, mortgage points and any additional money spent on your loan.
- Foreclosure:When you fail to make mortgage payments and the bank takes ownership of your home.
- Refinance: Revising or replacing the terms of your mortgage. Some homeowners do this to get a better interest rate or use their home equity to finance another house, renovate or pay off other debts.
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Initial Cd Is An Estimate Not Exact Figures
The CD Disclosure Team is part of the compliance department. Their main priority is to send the CD to start that three-day waiting period.
Please sign the Initial CD immediately upon receipt and dont panic if its not perfect. The vast majority of the time the Initial CD wont be completely accurate.
Think of the Initial Closing Disclosure like a permission slip. By e-signing the ICD, the mandatory clock starts and allows the lender to collaborate with the title company to prepare the Final CD.
What Is Hmda And Why Is It Important
HMDA stands for the Home Mortgage Disclosure Act, and, in its simplest definition, it is exactly as it soundsa law that requires certain financial institutions to publicly disclose information about home mortgages. Why would we need such a law? Prior to Congresss enacting HMDA in 1975, the public raised considerable concerns about mortgagesor, more importantly, the lack thereofin some urban, often minority, neighborhoods. Certain areas seemed to decline, in part because their residents were not able to obtain home mortgages. People noticed, and Congress took action.
HMDA requires lenders to report information about the loan applications they receive . The end result? A lot of data. Importantly, there are plenty of resources to help make sense of it all.
- The Consumer Financial Protection Bureau can help you stay on top of the latest national HMDA-related data and lending trends.
- The Federal Reserves Home Mortgage Explorer tool will help you explore the data in a user-friendly way. If youre not accustomed to working with the data directly, check out this infographic before you get started.
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Sign The Closing Disclosure
The Closing Disclosure is the mortgage document that outlines all the details of the home loan financing. The lender creates and sends the Initial CD after the initial underwriting approval and before the final underwriting approval.
The first page of the Closing Disclosure contains the loans terms and provides a breakdown of the monthly mortgage payment. The subsequent pages of the CD itemize the closing cost of the mortgage.
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How To Read A Closing Disclosure
Whether youre buying a new home or are looking to refinancing, before your mortgage becomes a binding agreement, youll receive what is called a closing disclosure. Your closing disclosure will include all the nitty-gritty details of your mortgage, from the borrowed amount to interest rates, closing and everything in between. Youll want to read this document carefully before signing the dotted line.
Closing disclosures, and really any legal document, can be tricky to decode especially if youve never read one. Fear not! Before getting overwhelmed and potentially missing crucial details of your loan, this article will break down each part of a closing disclosure. Still need help? You may want to hire a real estate professional to help go over any documents involved in buying or refinancing a home.
Does A Closing Disclosure Mean Your Loan Is Approved
No, a closing disclosure does not always mean your loan is approved. You may find incorrect information or something you want to change. Your lender also has the opportunity to back out if they find something new that makes them change their mind.
If all goes well and you sign and agree to the closing disclosure, the underwriter at your lender still needs to sign off. Once the lender signs the agreement, then all of the details you went over will be approved and binding.
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What Happens After You Receive The Closing Disclosure
The CFPB offers an example Closing Disclosure tool on its website to help you double-check the form for errors. Although your final Closing Disclosure should be ready for signature, you should always read your documentation with the assumption that any element be it your name, the interest rate or the address of the real estate could be incorrect.
Once you and your lender sign the Closing Disclosure, no changes can be made to the mortgage information.
If you find an error with your closing documents, notify your lender and title company immediately.
If changes are significant, the document will need to be revised, which will push your closing back at least a few days because youll have to review your updated Closing Disclosure form at least 3 days before your new closing date.
Errors In The Loan Disclosure Page
Errors in this page include omitting mention of liabilities towards demand feature, assumption, partial payment, and negative amortization.
Omitting these liabilities makes it difficult for borrowers to understand the status of the loan assumption. It will be difficult to understand whether lenders will accept partial payments from borrowers.
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How The Closing Disclosure Three
The closing disclosure three-day rule requires lenders to give borrowers the closing disclosure at least three business days before they finalize the loan. The three-day rule is meant to give you enough time to review your loan terms and make sure nothing has changed substantially from the loan estimate you received when you applied for your mortgage.
How Are Sellers Disclosure Requirements Determined
Seller Disclosure requirements can be dependent on local, state or federal laws. For example, it is required by federal law that sellers disclose lead-based paint hazards in houses built before 1978.
How a state determines its disclosure requirements or whether it even has requirements often depends, in part, whether the issue is considered material fact or not. Material fact is believed to influence a prospective buyers decision to purchase the home. Its essential to know. Nonmaterial is information thats seen as inconsequential, with little or no impact on a buyers decision.
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What Is A Mortgage Closing Disclosure
The mortgage closing disclosure is the final summary of what you owe for buying your home. It uses actual numbers to let homeowners know what all the final costs and fees will look like. There are many fees associated with closing, so the document coming at least three days in advance serves to remind the homeowner to get all the necessary funds ready.
It also summarizes all of the lenders information about a loan, such as the interest rate, term, and estimated monthly installment payments.
Everything thats on a closing disclosure is important because its a breakdown of what the borrower is paying, Piazza says.
When looking for a loan, youll get what is known as a loan estimate. Its a three-page document that describes an estimated interest rate, monthly payment and estimated closing costs. When you receive the mortgage closing disclosure, it may look different from the initial loan estimate you may have received. You can take this time to check if anything is incorrect or doesnt match up and confirm with your lender as to why.
The mortgage closing disclosure became a requirement as of 2015 as part of the TILA-RESPA Integrated Disclosure rule. Before that, two other documents were provided, which were given right at closing and provided homeowners little time to review.
Is A Closing Disclosure The Same As A Loan Estimate
A Closing Disclosure is not a Loan Estimate. Lenders provide a Loan Estimate after you apply for a mortgage to give you an estimated cost to close your mortgage loan. Some of the numbers in a Loan Estimate are likely to change before you close on your home.
You can compare the information on your Loan Estimate to your Closing Disclosure to see how close the estimate was and to see if certain costs exceeded the stated amounts. That said, some costs are out of the mortgage companys control and may not match the amounts on the Loan Estimate.
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Closing Disclosure Errors Before A Loan Closure
As a lender, it is important that you are in the good books of the Consumer Financial Protection Bureau when it comes to your level of TRID compliance.
CFPB has stated that auditors will stress more on compliance-related errors than technical closing disclosure mistakes.
On this note, here are some of the critical closing disclosure mistakes that are common before a loan closure.
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 shouldnt 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.
Weve highlighted the things you should know on each page when youre finalizing your mortgage.
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When You Take Out A Mortgage On A Home The Lender Is Legally Required To Give You A Closing Disclosure At Least Three Business Days Before You Close On The Loan
This document provides essential information about your home loan. If something in the document is incorrect, there could be delays in closing.
You may be wondering what information is on a Closing Disclosure and how you can check it for errors. Thankfully, the document is standardized, which makes it straightforward to understand. Heres what you need to know.
Calculating Cash To Close
Cash to close reflects the full amount you need to bring to closing and includes any deposits youve already paid to the seller. It will also include how much money, if any, the seller is planning to pay toward your closing costs known as seller concessions. These are closing costs that you negotiate with the seller to pay.
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