Buying and moving into a new home is one of life’s great experiences, especially if you’re buying your first home. From getting that pre-approval to the “yes!” response on an offer to closing and moving in, every step is exciting. And while the process is engaging and fun, it’s important to prepare for moving day […]
Reading and understanding your closing disclosure
Regarding the home-buying process, one of the most important documents you will receive is your closing disclosure. This document outlines all the necessary details about your mortgage loan and the final house purchase costs.
It’s vital for every homebuyer to carefully read and understand their closing disclosure before signing any papers at the closing table. In this blog post, we’ll provide an overview of essential information in a standard closing disclosure so you can approach each step informed and confident.
When you’ll receive your closing disclosure
You should get a closing disclosure from your lender three days before closing on your home. This allows you a chance to review all finalized costs associated with your loan, such as:
- Cash to close
- Closing costs
- Estimated taxes, insurance, and assessments
- Interest rates
The components of a closing disclosure
Before you finally close on your home, it’s critical that you understand all the terms of your loan and your closing disclosure. When reading through your closing disclosure, know that there are different components associated with it:
- Loan term: Shows the terms of your mortgage and contains your loan amount, interest rate, monthly principal and interest, prepayment penalty, and balloon payment.
- Projected payments: Breaks down your loan to show payment changes over the years. Includes payment calculation and estimated total monthly payment and your escrow account.
- Estimated Taxes, Insurance, & Assessments: Fees that are not escrowed and can include property taxes and homeowners’ insurance.
- Closing Costs: Breaks down all costs paid at closing, including itemized costs such as origination fees, mortgage points, and services you did and did not shop for.
Prepaid items are also included in your closing disclosure, showing costs paid in relation to the property itself. These costs are paid before closing and placed in escrow to lower the risk to both you and your lender.
This list is not comprehensive, so review your closing disclosure with your lender if you have any questions.
Check to make sure all your information is correct
When you first receive your closing disclosure, check to make sure that all your information is correct on your closing disclosure. This means your name, address, loan type, product, and the purpose of the loan.
During the closing, you will be presented with a list of variations of your name, called a “Signature Affidavit and AKA Statement.” You may see variations of your name from your first and last; first, middle, and last; to your maiden name, and you will be required to sign or print each correct name. This protects you, the lender, and the title company from fraud.
Compare the costs on closing disclosure to your most recent loan estimate
If you find discrepancies between your closing disclosure and loan estimate, contact your lender to explain them and get them corrected. For example, if your interest rate increased between receiving your loan estimate and closing disclosure, request an explanation.
Fixing discrepancies may cause a delay in closing, but it’s worth it so errors and problems can be avoided down the road.