July 31, 2023
Why you need to carefully review your Closing Disclosure before buying a house
If you are in the process of buying a house, you have read and signed multiple documents already, including a loan application, the purchase agreement, preliminary disclosures and the title search documents.
The most important document, however, is yet to come.
Prior to closing on your mortgage, you will be provided with a Closing Disclosure. This five-page document provides vital details about your mortgage loan and the closing costs you will incur.
By law, your lender must provide you with the Closing Disclosure three days before closing to give you ample opportunity to review the document – and more importantly – to ask for clarification if there are any mortgage terms or charges that you do not understand or that you wish to dispute.
Let’s explore the specific items you should pay close attention to.
Page 1 - Loan terms, payments and closing costs
Page 1 of the Closing Disclosure contains your personal information as well as an overview of your mortgage terms, your projected payments, your closing costs and the amount of cash you must bring to the closing.
Here is a checklist of what you should look for
- Make sure your name is spelled correctly, as this is how it will appear on the loan documents
- Carefully review the loan information, including the type of loan, the loan term (number of years to pay off the loan), the loan amount, and interest rate, comparing all of this information to your original Loan Estimate
- Compare the estimated monthly payment against the Loan Estimate and review the estimated taxes, insurance and assessments to see which of these items will be held in escrow and which you will pay separately
- Check closings costs and the cash you must bring to closing to ensure they match what was promised in your Loan Estimate
Page 2 - Closing cost details
Page 2 lists the services required in the process of securing your loan, for instance your origination charges, as well as fees for the appraisal, credit report, flood determination, pest inspection, survey, and title search and insurance. Carefully compare all of these charges against what was promised in your Loan Estimate.
The bottom half of page 2 lists other costs you have incurred, such as recording fees, mortgage insurance premiums, homeowners’ insurance, property taxes, real estate commission and homeowner’s association fees, if any.
All of these fees are reflected in the final closing costs total at the bottom, and divided into what you will pay as the borrower and what costs the seller pays.
Page 3 - Closing costs and transaction summary
Page 3 provides an overview of cash needed to close the transaction and should include seller credits if those were negotiated as part of the purchase agreement.
Page 4 - Loan disclosures
Page 4 provides a summary of the terms of the loan that you previously agreed to with your lender.
This page can be the most challenging for homebuyers because the terms contain technical and legal jargon that may seem foreign to you. This three-day period gives you an opportunity to contact your lender directly for an explanation, or work with your attorney or financial advisor to make sure you understand exactly what you are agreeing to.
Page 5 - Loan calculation, disclosures and contact information
Page 5 lists the total of all payments you will make over the life of the loan and breaks out the loan amount and the interest paid to the lender.
Under other disclosures, there is a section titled "Contract Details." This disclosure advises you to carefully read your mortgage documents to understand what will happen if you fail to make your payments and what if any rules there are about making payments ahead of time or paying off your mortgage early.
At Kriss Law/Atlantic Closing & Escrow, we have a full range of experienced legal professionals to assist you with a thorough review of your Closing Disclosure. Contact us to learn more about our services and expertise.