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Reading & Understanding Your Closing Disclosure
Three days before closing on your home, you should get a closing disclosure from your lender. This document shows all finalized costs associated with your loan, such as:
- Cash to close
- Closing costs
- Estimated taxes, insurance, and assessments
- Interest rates
Before you finally close on your home, it is critical that you understand all of the terms of your loan and your closing disclosure. This will help prevent you from paying more than you should.
The Components Of A 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. Includes 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 that have been paid in relation to the property itself. These costs are paid in advance of closing and are placed in escrow to lower the risk to both you and your lender.
This list is not comprehensive, so be sure to go over your closing disclosure with your lender if you have any questions.
Check To Make Sure All Of Your Information Is Correct
When you first receive your closing disclosure, check to make sure that all of your information is correct on your closing disclosure. This means your name, address, loan type, product, and the purpose of the loan. Even a minor misspelling of your name can cause a lot of problems down the road.
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 will be required to sign or print each name that is correct. This is to protect 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 went up in between the time you received your loan estimate and closing disclosure get an explanation immediately. Interest rates that are higher than you expected or agreed on can cost you more over the life of the loan. Your lender should have locked in the rate and get the error resolved.
Fixing discrepancies may cause a delay in closing but it is worth it so errors and problems can be avoided down the road.