Your Closing Disclosure Spelled Out

Your Closing Disclosure Spelled Out

Understanding your Closing Disclosure (CD) paperwork is important when purchasing a home, so our team of experts spelled out all five pages of the CD to ensure you don’t get lost in the flood of mortgage terminology. Below are some example images of what your CD will look like along with a full explanation of each line when you purchase a home. Keep in mind, some information will be different when you refinance a home.

PAGE 1

Page 1 of the Closing Disclosure has several sections, which include a quick glance at the important mortgage loan details, the terms of the mortgage for the home you are purchasing, the projected monthly payments of your new mortgage, and the closing costs and cash needed for closing on your new home. This information will be repeated, more in depth, on other pages of your CD.

Closing Information. This first section shows who is purchasing the home, the address of the home, and the agreed upon terms of the mortgage.
Date Issued is the date when the Initial Closing Disclosure is provided to you, the borrower.
Closing Date is the date you, the borrower, will sign all your loan documents with the title company/notary. This is the date that your new house becomes yours.
Disbursement Date is when the title company disburses loan funds to all parties. This date should match your closing date.
Settlement is the name of the title company conducting your mortgage transaction.
Agent File # is the title agency’s unique identifier number for your loan.
Sales Price is the agreed upon price of the property you are purchasing.
Transaction Information
Borrower is your name, as the individual(s) purchasing the new home, along with your current address.
Seller is the name of the individual(s) selling their home to you, and their current address (this address should be the address of the property you are purchasing).
Lender is the name of the financing institution in which you are obtaining a mortgage loan.
Loan Information
Loan Term is the length of agreed upon time for your new mortgage loan. This is typically 30 years and is often referred to as the “life of the loan.”
Purpose indicates if the transaction is a purchase or a refinance. If this shows Refinance, your CD may look different than the images you see below.
Product is the type of loan you are obtaining, either a fixed rate or adjustable rate mortgage (ARM).
Loan Type is what type of mortgage you are obtaining; for example, conventional, or government (FHA/VA), etc.
Loan ID is the lender’s unique identifier number for your loan application.
MIC# is an assigned number from the FHA/VA or Mortgage Insurance Company. You may not have a number here if you are not using an FHA or VA loan, or if you do not have Mortgage Insurance.

Loan Terms
Loan Amount is the amount you are borrowing to purchase your new home. This amount is based on the purchase price of the property minus your down payment.
Interest Rate is the amount you are charged to borrow money, expressed as a percentage of the loan amount.
Monthly Principal & Interest (P&I) is two parts. First, the principal is your loan balance that is owed to the lender; second is the interest which is the rate you are charged for obtaining a loan. Those two payments combined is your P&I, or your base monthly payment.
Prepayment Penalty means the lender will charge a fee, or penalty, if you pay off your loan early, if marked Yes. If this is marked No, you are not charged a penalty for paying off the balance of your loan early.
Balloon Payment means you may have lower monthly payments, but at the end of the balloon period, a large lump sum is required to pay off the balance of the mortgage loan, if marked Yes. This is typically marked No.

Projected Payments
Principal and Interest should match the P&I on the previous section under Loan Terms. Again, this is your base monthly payment.
Mortgage Insurance is required if you provide a down payment less than 20 percent of the purchase price of your new home. Mortgage Insurance, or MI, protects the lender if you default on your loan payments. With a conventional loan, the monthly fee is for Private Mortgage Insurance, or PMI. This monthly fee will typically cancel once you’ve paid off 78 percent of your loan balance, as shown in this example. With an FHA loan, the monthly fee is for Mortgage Insurance Premium, or MIP. This will not cancel until you refinance your loan to conventional or sell your property.
Estimated Escrow is the amount allocated each month for property taxes, homeowners’ insurance, and flood insurance if applicable. This amount may change over time as annual property taxes increase or decrease. When this number changes, it will affect your total monthly payment, if you are escrowing.
Estimated Monthly Total is the total amount you will pay each month for your mortgage payment. This adds up your P&I, mortgage insurance, and escrow amount (taxes and homeowner’s insurance); this is called your PITI.
Estimated Taxes, Insurance & Assessments show how much you will pay each month if you are escrowing your property taxes, homeowner’s insurance, or flood insurance. The appropriate boxes will be checked and labeled “YES” in escrow. Homeowner Association dues (HOA), however, are typically not included with a borrower’s monthly payment and is paid separately.

Costs at Closing
Closing Costs are all fees related to your mortgage transaction when purchasing a home. These costs are broken down in the following pages.
Cash to Close is the amount you will need to bring to the closing on the day of closing. This amount includes all costs associated to the transaction, including your closing costs and down payment amount. This will also be broken down in the following pages.

PAGE 2

Page 2 of the Closing Disclosure breaks down your costs associated with your mortgage loan. It goes into detail which fees are being charged to you, which fees you have already paid in advance, and customary seller charges. Page 2 is broken down into 10 sections, A-J.

Section A: Origination Charges. This section shows what fees you are being charged by your lender for obtaining a mortgage loan through their company. There are two columns for costs under the heading “Borrower Paid”. “At Closing” includes anything charged to you for your mortgage loan at the time of settlement. “Before Closing” is any charge you may have paid prior to your settlement closing, such as an appraisal fee or a Homeowners Insurance Premium.
Origination fee or Processing Fee is an upfront fee charged from the lender for processing your mortgage. This can be in the form of origination points, processing fee, underwriting fee, or application fee.
Points are an upfront fee paid to the lender to obtain a lower interest rate. Not all loans use points.

Section B: Services Borrower Did Not Shop For. This section lists the third-party service fees required to obtain a mortgage. The most common example is the appraisal fee or credit report fee.

Section C: Services Borrower Did Shop For. This section lists the third-party service fees you can shop for. When provided with your initial disclosures, you are given a settlement service provider list showing the names of recommended companies for services, such as a title company. The Loan Estimate is based on the lender preferred title company provider, for example, ABC Title. However, you can shop for a different title company provider, such as 123 Title; thus you have shopped for other services with fees.

Section D: Total Loan Costs. This section adds up the total costs you are charged for Sections A-C.

Section E: Other Costs/Taxes and Other Government fees. This section shows the cost to record the warranty deed and mortgage from the County Recorder’s office. The County recording fees may vary depending on which county you are purchasing a home in. If there are any City/State/County transfer taxes that need to be paid to purchase the property and transfer ownership, those fees will also be shown in this section. Typically, if there are transfer taxes, they are paid for by the seller at closing.

Section F: Prepaids. This section includes anything that may need to be paid for at the time of closing. This usually includes interest accrued on the mortgage loan from the date of closing to the first of the following month, Homeowners Insurance Premiums, and possibly a property tax installment if owed at the time of closing. If you obtain a government mortgage such as FHA, VA, or a conventional loan, there may also be an upfront fee charged, which would be reflected in this section.

Section G: Initial Escrow Payment at Closing. If a you choose to have your homeowner’s insurance and property taxes included with your monthly mortgage payment, that is called Escrowing. This section establishes your escrow account to pay certain costs when your new property tax or homeowners insurance bill is due.
Section H: Other. This section shows any other costs that may be associated to your mortgage loan that will need to be paid at closing. These charges are not paid to the lender, but to third parties, such as buyer’s attorney or Homeowners Association Dues. You may also see the real estate commission charged to the seller in this section, as well as the title owners policy.

Section I: Total other Costs paid by the borrower. Similar to Section D, this section adds up the total costs charged in Sections E-H.

Section J: Total Closing Costs. This section adds up the total of all the costs associated to your loan transaction, and subtracts your down payment, or Earnest Money. The final number shown in this section is the total of Section D and Section I, which added up sections A-C and E-H. You may also have a Lender Credit in this section which will help offset some of the closing costs. This usually occurs if you choose to obtain a slightly higher interest rate in order to pay a lower down payment up front.

PAGE 3

Page 3 of the Closing Disclosure is a general summary of your loan transaction. It provides the final cash to close amount you will need to bring to the title company for closing.

Section K: Due From Borrower at Closing. This section shows the total amount you are charged for your loan transaction. It adds the purchase price of the property to your total closing costs shown in section J of Page 2.

Sometimes, in Section K, you’ll have costs prepaid by the seller in advance, such as Homeowner Association dues, or property taxes (some states do not pay in arrears). Then you would need to reimburse the seller for a portion of those costs, which would show up as a cost to you in the “Adjustments for Items Paid by Seller in Advance” section.

Section L: Paid Already by or on Behalf of the Borrower at Closing. This section shows the amount you are borrowing to purchase your home. It includes your earnest money deposit, adjustments for items unpaid by the seller, and tax proration credit. This credit appears if the seller reimburses you with a partial credit for future tax bills.

Cash to close: This is the final amount you need to bring to closing in the form of a Cashier’s Check. This figure comes from the difference of the total in Section K and the total in Section L.

PAGE 4

Page 4 of the Closing Disclosure provides a brief synopsis of the loan disclosures regarding your mortgage loan transaction.

Assumption is if you decide to sell your home and your loan can be taken over by the new buyers with the same terms, so they do not have to obtain their own mortgage loan. If the loan is not assumable, any potential buyer will not be able to take over your mortgage, instead having to obtain a new mortgage loan to purchase the property.

Demand Feature means that your lender may demand immediate payment of the full loan balance at any time. This is uncommon.

Late Payment lets you know that you will be charged a certain percentage of the principle and interest (P&I) as a fee if your monthly payment is more than 15 days late.

Negative Amortization is also uncommon. If you have this, your loan balance may increase even if you pay your monthly payments on time for the full amount.

Partial Payments is another less common loan feature. If marked yes, you may make monthly payments less than the full amount.

Security Interest shows your new property address and advises you that the lender may foreclose on your property if you do not pay your monthly payments on time.

Escrow Account shows if you have elected to escrow your property taxes and homeowner’s insurance. This means those fees will be included in your monthly payment. If you do not escrow, this section will show what the annual costs will be.

PAGE 5

Page 5 of the Closing Disclosure reviews the overall loan calculations over the life of the loan as well as other disclosures you will receive. It also includes contact information for all companies involved with your loan transaction.

Loan Calculations: Total of Payments. This section shows you how much you will pay over the life of the loan if you do not make any extra payments. This number includes your principal, interest, mortgage insurance, and loan costs over the full loan term (usually 30 years).

Finance Charge shows you the total amount of fees and interest you will pay over the life of your loan.

Amount Financed is how much you are borrowing from the lender minus upfront fees charged (Section A), such as points or an origination fee.

Annual Percentage Rate is the rate you are charged for borrowing money. This rate is expressed as a single percentage number and takes into account interest, discount points, lender fees and mortgage insurance, so it will be slightly higher than the interest rate on the loan.

Total Interest Percentage (TIP) is expressed as a percentage; it shows how much interest you will pay over the life of the loan, divided by how much you borrowed (loan amount).

Other Disclosures. This section provides you with appraisal requirements; important information about your loan documents, specifically the note and mortgage; and advises you about your liability if your home is foreclosed on.

Contact Information. This final section provides specific contact information for your lender, buyer and seller real estate agents, and settlement agent. It’s important to have this information so you know who to contact if you have any questions.

This document includes a lot of significant figures for your mortgage. It’s important that you understand what each figure represents before you sign any documents. If you have any questions, don’t hesitate to ask your Loan Officer for more information.

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