WHAT IS A CLOSING DISCLOSURE AND WHY IS IT IMPORTANT?
A Closing Disclosure is a five page form required by the Consumer Financial Protection Bureau, or CFPB when consumers apply for a mortgage and fully complete the mortgage loan application. The form itself is a five page document that includes the terms of the loan including your interest rate, when and if the rate can ever change, the term of the loan, monthly payments as well as an estimated list of closing costs. The form is required by statute to be provided to borrowers three business days prior to the scheduled closing.
When you review the form, it might seem a bit overwhelming at first but if you take it one section at a time and talk it over with your loan officer it’s really very simple. Your job is to compare what was originally disclosed to you regarding loan fees as well as things like the spelling of your name, the property address and the loan amount.
Three days after you submitted a completed loan application your loan officer provided you with a Cost Estimate. That form listed the projected fees you would encounter when you attend your settlement. This is important because if any of the fees are different, you need to find out who is going to pay for the discrepancy. If the lender’s fees are off, the lender is responsible for paying the difference. For instance, the lender originally disclosed their underwriting fee would be $400 but instead the Closing Disclosure shows the fee is actually $450. You don’t pay that difference, the lender does.
Other charges listed on the Closing Disclosure are in a section called “Services Borrower Did Not Shop For.” These are fees for services the lender requires in order to close your loan. A credit report or a flood certificate would fall into this category. In this section, the fees can be higher by as much as 10 percent of the original estimate. Anything beyond the lender is responsible for. In the “Services Borrower Did Shop For” section, these are the fees where you did shop around for and if there are any differences you’ll need to contact the service provider directly and address the discrepancy.
Once you’ve gone through the Closing Disclosure and agree with the numbers, you’ll sign the document and return to the lender. Now that you’ve reviewed this important disclosure, your loan closing will be a smooth one.
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