Purchasing a home is a significant milestone in anyone's life. It's a journey filled with excitement, anticipation, and a lot of paperwork. As a Louisiana real estate title company, we demystify the Closing Disclosure and ensure you understand every detail before you close on your new home.
What is the Closing Disclosure?
The Closing Disclosure is a five-page form signed by homebuyers at closing which is required by a U.S. government agency called the Consumer Financial Protection Bureau. The Closing Disclosure provides details about the mortgage loan you have selected, as well as information as to your loan terms, projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (also called closing costs). You should receive this document at least three business days before your closing date, giving you ample time to review it thoroughly.
The Purpose of the Closing Disclosure
The primary purpose of the Closing Disclosure is to provide transparency. It ensures that there are no surprises at the closing table by offering a detailed breakdown of the financial aspects of your home purchase. By reviewing this document with a trusted real estate title company, you can verify that the terms of your loan and the costs associated with it are exactly what you expected.
Page-by-Page Breakdown of the Closing Disclosure
Now let’s break the Closing Disclosure down.
Page 1: Loan Terms, Projected Payments, and Costs at Closing:
1. Loan Terms - This section outlines the critical terms of your loan, including:
- Loan Amount: The total amount of money you are borrowing.
- Interest Rate: The cost of borrowing the money, expressed as a percentage.
- Monthly Principal & Interest: Your monthly payment that goes towards the loan amount and interest.
- Prepayment Penalty: Any fee for paying off the loan early.
- Balloon Payment: A larger-than-usual payment at the end of the loan term, if applicable.
2. Projected Payments
This section shows a breakdown of your monthly payments, including:
- Principal & Interest: Your regular loan payment.
- Estimated Escrow: Funds held by your lender to pay property taxes and insurance.
- Mortgage Insurance: If required.
3. Closing Costs and Funds Required to Close
This section shows the total amount you’ll need to bring to closing, which includes:
- Closing Costs: All fees, prepaids and other costs associated with your loan.
- Cash to Close: The total amount of funds you are required to bring to your closing, including your down payment.
Page 2: Closing Costs and Prepaids
Page 2 provides a detailed breakdown of your closing costs and prepaids, divided into two main sections:
- Loan Costs
- Origination Charges: Fees for processing your loan application.
- Services You Cannot Shop For: Costs for services required by your lender, such as an appraisal or credit report.
- Services You Can Shop For: Fees for closing service providers such as an abstractor, title and escrow company, survey, title insurance, and any other professional costs or fees.
- Other Costs
- Taxes and Other Government Fees: Recording fees charged by the parish Clerk of Court offices for recording documents such as the deed, mortgage, and any other documents filed into the public records system.
- Prepaids: Upfront payments usually held by your mortgage servicing company in advance on your behalf to pay for current and future property taxes, homeowner’s insurance, and prepaid interest.
- Other: Additional costs such as real estate agent and/or broker commissions, homeowner’s association fees, home warranties, etc.
Page 3: Cash to Close and Summary of Transactions
Page 3 provides a summary of the homebuyer’s credits and debits contained on the prior pages and shows the total net amount you will need to bring to closing, including:
Page 4: Additional Information About Your Loan
This page offers detailed information about the terms of your loan, including:
Page 5: Loan Calculations, Other Disclosures, and Contact Information
Tips for Reviewing Your Closing Disclosure
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Compare with Your Loan Estimate: The Loan Estimate, which you received when you first applied for your loan, should closely match the Closing Disclosure. Look for any significant discrepancies and ask your lender and/or title company to explain them.
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Check for Accuracy: Verify that all personal information, loan terms, and property details are correct. Ensure that the spelling of your name, property address, and other critical details are accurate.
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Understand Your Costs: Make sure you understand each fee listed and why each is being charged. Don’t hesitate to ask for clarification if something doesn’t make sense.
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Review Your Monthly Payment: Ensure your projected monthly payment fits within your budget. Remember to account for any changes due to property taxes or insurance.
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Confirm Your Cash to Close: Double-check the amount you need to bring to closing. Make sure you have the necessary funds available and know how to transfer them. Generally, any amount over $2,500 must be in the form of a certified check or wire. Make sure to make arrangements far in advance to ensure you will have certified funds delivered to your title company at closing.
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Final Thoughts
The Closing Disclosure is a vital document in the homebuying process. Taking the time to review it thoroughly can save you from potential surprises and ensure you’re fully prepared for your closing day. At Durrett Title, LLC, we’re here to guide you every step of the way, providing the expertise and support you need to make informed decisions. If you have any questions about your Closing Disclosure or any other part of the homebuying process, don’t hesitate to reach out to our experienced team. Happy homebuying!