For all mortgage applicants after October 3, 2015, the Closing Disclosure form will answer many common questions and give protection as to essential terms. This five page document must be given to borrowers at least three days prior to closing. By comparing the Closing Disclosure to the Loan Estimate received by applicants when they applied for the mortgage, they can note any changes and avoid last minute surprises in a roomful of people at the closing.
On the first page, the Loan Amount and the Interest Rate are set forth. If the borrower did not lock his or her rate at the time of application, the Interest Rate may be different that what was shown on the Loan Estimate.
Did the borrower obtain a fixed rate loan or an adjustable rate mortgage? Does the loan have a prepayment penalty? Is it a balloon loan? Again, these appear on the first page of the Closing Disclosure.
There, you will also find the Monthly Payment, with a breakdown of principal and interest and mortgage insurance, as well as the escrow component which includes such items as homeowners insurance, property taxes and flood insurance.
On the second page of the Closing Disclosure, all of the lender fees and other closing costs are listed. These fall into three categories: fees that cannot change from what is on the Loan Estimate, fees that cannot change more than 10% from the Loan Estimate, and fees that can change. It is simple enough to compare all of these fees to those on the Loan Estimate to confirm that the lender did not make a mistake. It can happen.
If the loan involves the payment of points, then those would be shown as Origination Charges on the same page. If your loan was not to include points, but the Closing Disclosure lists points, it is imperative to contact the lender to have the points removed.
Lastly, on page 3, the lender must list the amount of funds needed from the borrower for closing, set forth as Calculating Cash to Close. Since the borrower will need to provide a bank check or wire for these funds, it is very helpful to have this figure at least three days before closing.