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When you apply for a mortgage, you receive a Loan Estimate from your lender that details the loan terms it intends to offer, such as the interest rate and closing costs. As you get nearer to your closing date on a home purchase, your lender will provide you with a detailed Closing Disclosure.
The Closing Disclosure is similar to the Loan Estimate, but the terms are more finalized. Before closing on the house and receiving your keys, read through the disclosure carefully to ensure you understand the terms of your mortgage loan.
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A Closing Disclosure is a five-page standardized document your mortgage lender is legally required to give you at least three business days before closing. It breaks down the details of your mortgage and monthly payments and provides an itemized list of your closing costs. These are the final terms of your mortgage loan, though you still have a few days to question or negotiate costs before closing.
Your Closing Disclosure includes your interest rate, term length, monthly payments, and closing costs. This probably won’t be entirely new information to you since you should have received similar information on your Loan Estimate a few days after applying for the mortgage loan. But as you complete the additional steps to buy a home, such as providing complete financial documentation to your lender and having an appraisal of the house you intend to buy, there may be slight differences in your loan terms, closing costs, or monthly payments.
Closing Disclosures allow you to review all the terms and expected expenditures before your settlement. You’ll have time to compare the information with the numbers on your Loan Estimate, ask your lender questions, and confirm that all your paperwork is in order.
Before the Consumer Financial Protection Bureau (CFPB) began in 2015 to require a Closing Disclosure in advance of most settlements, home buyers were sometimes caught off guard by the costs and terms they didn’t understand or expect to pay.
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Your lender is legally required to give you a Closing Disclosure at least three business days before your scheduled closing date. You must acknowledge receipt of the Closing Disclosure, usually via an e-signature, to show that the lender complies with the three-day rule.
After reviewing the Closing Disclosure, you should notify your lender if any changes must be made. If the changes are significant, the lender will need to issue a new Closing Disclosure. That second Closing Disclosure must also be received three days prior to your settlement, so this could push back your closing date.
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Your Closing Disclosure includes details about your home purchase expenses and your loan. The five-page document includes:
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Loan details. This includes the type of loan you have (such as an FHA or a conventional loan), your interest rate, and the number of years you have to repay it, such as 15 or 30 years. This will also confirm whether you have a fixed or adjustable interest rate.
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Estimated payment. Your monthly payment estimate includes principal, interest, mortgage insurance (if applicable), and escrow amounts for property taxes and insurance. Each cost will be labeled to show whether it is fixed or can change over time.
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Closing costs and cash to close. This includes closing costs such as the appraisal fee, recording fees, transfer taxes, and up-front insurance premiums. Your total cash to close is your closing costs along with expenses such as your down payment.
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Total loan amount. If you rolled any closing costs or mortgage insurance into your loan, the amount shown on your Closing Disclosure may be different than on your Loan Estimate.
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Disclosures. You’ll see legal language about your loan features, such as whether it’s an assumable loan and your escrow requirements. You’ll also find an appraisal disclosure and details such as what happens if you miss a payment.
There are various reasons why the Closing Disclosure is longer and more detailed than your Loan Estimate. For example, the Loan Estimate lists which closing cost services you can shop for, while the Closing Disclosure lists the costs you did shop for and the dollar amount of each cost.
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As you review your Closing Disclosure form, certain items are particularly important to check against your Loan Estimate. It’s a good idea to share both documents with your real estate agent so they can help you with the details. If you have any questions, contact your lender as soon as possible to avoid a settlement delay. The CFPB has a that explains what each section provides.
Here are essential items to check on your Closing Disclosure:
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Your name and address. If your name and the property address are incorrect, this must be fixed before the settlement. It can delay your closing if new paperwork must be prepared to meet the three-day rule.
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Loan amount and details. Double-check that the total amount you’re borrowing, the term length, the interest rate, and whether your rate is fixed or adjustable match the info on your Loan Estimate. Also, check any mortgage insurance premiums and escrow amounts.
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Fees. The long list of fees in this document may seem laborious, but you should go through each number to ensure you understand it and that the amounts are correct. If you see fees and don’t know what they are — or if they are higher than the Loan Estimate — ask your lender to explain them.
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Seller credits. If you negotiated with the seller to pay some of your closing costs, make sure this amount is reflected in your Closing Disclosure.
While you might focus on your interest rate and monthly payments, it’s crucial to review the fees listed on your Closing Disclosure. Generally, there are three buckets of fees on a Closing Disclosure: those that cannot change compared to your Loan Estimate, those that can change by up to 10%, and those that can change by an unlimited amount.
Keep in mind that if your circumstances change — maybe you changed your down payment amount, your credit profile changed before your loan closing, or the appraisal on your house was higher or lower than anticipated — that could generate more changes on your Closing Disclosure.
Otherwise, according to the CFPB, the following costs can change by any amount:
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Prepaid interest, homeowners insurance premiums, or initial escrow account deposits
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Fees for services required by the lender that you shopped for if you choose a service provider that is not on the lender’s written list of providers
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Charges for third-party services that the mortgage lender does not require you to order
The lender cannot alter the following costs cannot change unless you’ve had a “change in circumstances” since receiving your Loan Estimate:
The following costs can change by up to 10% compared to the Loan Estimate:
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Receiving a Closing Disclosure is almost the final step in buying a house — but not quite. The final steps include a walk-through of the property to check it’s in the condition you expected when you made your purchase offer and the closing itself, when you sign documents, provide the funds as stated in the Closing Disclosure, and get your keys.
If your closing date is three business days away and you don’t have a Closing Disclosure in hand, contact your lender immediately. Any delay in the Closing Disclosure could result in a delayed settlement.
Why are my interest rate and closing costs different on the Closing Disclosure compared to my original Loan Estimate?
If you locked in your rate with your mortgage lender, your interest rate should be the same as on your Loan Estimate. Otherwise, the lender can charge a different rate if something happens between receiving your Estimate and Closing Disclosure, such as a shift in market rates or a drop in your credit score. Your closing costs can vary depending on factors such as the property appraisal, whether you changed your down payment amount and the exact amount you need to deposit in your escrow account.
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