taking notes on a book about loans

What is a Closing Disclosure Statement

A closing disclosure is a legal five-page form that provides the final mortgage statement. This includes closing costs, loan costs, payments, and more.

If you are looking to buy a home anytime soon, you should know all about what is a closing disclosure and what it has to do with mortgage loans, escrow accounts, and more. 

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What is a Closing Disclosure?

Closing Disclosure Definition

A closing disclosure is a five page document that "discloses" or outlines all the final terms and details of a home loan. These closing documents outline all the details of a mortgage loan like principal and interest of the loan, total amounts, monthly mortgage payments, and informative closing tables that help clearly outline this numerical information. 

Closing Disclosure Form Example

A standard closing disclosure consists of a five page document with 15 different sections. These 15 sections go over all the details, final terms, and loan costs for a mortgage loan, including the cost of closing on the house you want to buy. 

closing disclosure form examples graphic

Let's take a closer look at all the closing disclosure forms so you know what you're checking later when we explain the closing disclosure timeline. 

1. Closing Information 

The first section includes closing information. This outlines details about the closing statement itself like the date issued, the closing date, the disbursement date, the name of the settlement agent, the file number, the address of the home being bought or refinanced, and the sale price of the home. 

2. Transaction Information 

The second section includes information about the mortgage loan transaction like the borrowers' names and address, the seller's names and address, and the lender's name. 

3. Loan Information 

The third section includes information about the home loan like the loan term (how long the loan is set for, for example, 30 years), the purpose of the loan (for example,  it could be to purchase a home or to refinance a home), the type of interest rate (for example, it could be a fixed rate or a variable rate), the loan type (for example, it could be a conventional or standard loan type, or it could be an FHA or VA loan type), and the loan identification number, the Mortgage Investment Corporation (MIC) identification number. 

4. Loan Terms 

The fourth section includes information about the final terms of the loan like the total amount of the loan, the principal and interest rate, whether there is a prepayment penalty and how much the prepayment penalty would cost, and information about balloon payments for balloon mortgages. 

5. Projected Payments 

The fifth section includes information about projected monthly mortgage payments. This is usually outlined in a loans costs calculations chart that breaks down the principal and interest, mortgage insurance costs, estimated escrow costs, and the total monthly mortgage payment amount.

This table can also include estimated property taxes and insurance, home owners insurance, and even Homeowner's Association (HOA) fees. 

6. Costs at Closing 

The sixth section includes information about estimated closing costs. These include how much you are paying overall just for closing on the deal to buy a house. This table also includes something called "cash to close," which includes the amount of money you'll need to pay on the actual closing day.

The cash to close or funds to close amount includes your down payment and other closing cost payments or fees. 

7. Loan Costs 

The seventh section includes information about origination fees like the loan application fee, or underwriting fee. Other parts of this table include information about other loan services the borrower did and did not use like home inspection fees. 

8. Other Costs 

The eighth section includes information about other miscellaneous loan costs like tax and insurance payments, government feeds, escrow fees, HOA fees, and more. 

9. Calculating Cash to Close 

The ninth section includes more detailed information about what all is included in the cash to close total amount. This cash to close amount could include things like seller credits, deposits, down payments, and other closing costs.

Average closing costs can be around 3% to 6% of the loan amount. 

10. Summaries of Transactions 

The tenth section is like a receipt of all the borrower and seller transactions and total amounts that have to do with the purchase of this home. This will outline the things that buyer paid for vs what the sellers pay. 

11. Loan Disclosures 

The eleventh section includes information about loan assumptions, loan demand features, late payment fees, negative amortization or potential future increases in your loan amount, partial payment guidelines, security interest, and your escrow account information. 

12. Loan Calculations

The twelfth section includes information like the total of payments on the loan, the amount of the total amount that is finance charges, the amount financed, the annual percentage rate (APR) of the home loan, and the total interest percentage (TIP). 

13. Other Disclosures

The thirteenth section includes other contract details you should read and make sure you understand because they will direct the terms of your loan contract with the lender. 

14. Contact Information 

The fourteenth section includes all the contact information associated with the mortgage loan agreement like the lender's contact information, the real estate broker's contact information, and the settlement agent's contact information. 

15. Confirm Receipt 

The fifteenth section is where the applicant or applicants sign the closing disclosure to show that they have received their closing statement. 

The Closing Disclosure Timeline

Many homebuyers will purchase a mortgage loan in order to pay for a house. This sends the home buyer down a specific home buying process that includes a closing disclosure.

In order to make sure home buyers are getting the documents and forms they need in time, mortgage loan lenders must follow the three-day closing disclosure rule. 

The Closing Disclosure Timeline Graphic

The Three-Day Closing Disclosure Rule

The three-day closing disclosure rule states that closing disclosures must be given to buyers at least 3 business days before the closing day. 

The three-day closing disclosure rule was created by the Consumer Financial Protection Bureau (CFPD) to help make sure consumers get their closing statements with enough time to overview the forms before closing day. 

In Conclusion,

Buying a home is a lengthy process that includes a lot of steps! Hopefully, this article helps home buyers know what to expect in the closing process.