Closing Disclosure At-a-glance
- The new form is 5 pages long.
- New form replaces the TILA and HUD-1.
- One Closing Disclosure is required for each loan.
- Charge descriptions on both the Loan Estimate and Closing Disclosure must match.
The Closing Disclosure replaces the Truth-in-Lending Act (TILA) disclosure and the HUD-1 Settlement Statement. Under the fnal rule, the creditor is responsible for delivering the Closing Disclosure to the consumer, but creditors may use settlement agents to provide the Closing Disclosure, provided they comply with the fnal rule.
There is still a requirement for one Closing Disclosure for each loan and charge descriptions used on the Loan Estimate must be substantially similar to the descriptions used on the Closing Disclosure. This is so a consumer may easily identify a change in costs or terms by a comparison of the two forms. The lender is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan.
The Closing Disclosure generally must contain the actual terms and costs of the transaction. Creditors may estimate disclosures using the best information reasonably available when the actual term or cost is not reasonably available to the creditor at the time the disclosure is made. However, creditors must act in good faith and use due diligence in obtaining the information. The creditor normally may rely on the representations of other parties in obtaining the information, including, for example, the settlement agent. The creditor is required to provide corrected disclosures containing the actual terms of the transaction at or before consummation.
Page 1 of the Closing Disclosure
The first page of the Closing Disclosure is almost identical to the Page 1 of Loan Estimate. It describes the:
Review your monthly payment. Part of it goes to repay what you borrowed (and may build equity in your new home), and part of it goes to pay interest (which doesn’t build equity). Equity is the current market value of your home minus the amount you still owe on your mortgage.
- Loan amount.
- Interest rate.
- Projected Payments
- Any prepayment penalty or balloon payment.
Costs at Closing
Be prepared to bring the full “Cash to Close” amount with you to your closing. This
amount includes your down payment and closing costs. The closing costs are itemized
on the following pages.
This page also provides the projected payments over the life of the loan. This page also discloses to the borrower what amounts will be deposited into their impound or escrow account and provides the total estimated costs closing costs and cash to close.
Page 2 of the Closing Disclosure
The second page is similar to the current Page 2 of the HUD-1 Settlement Statement. It provides a breakdown of all the closing cost details and lists all loan costs and other costs paid by borrower, seller, and other parties.
Total Loan Costs
Origination charges are fees your lender charges to make your loan. Some closing costs
are fees paid to the providers selected by your lender. Some are fees you pay to providers
you chose on your own.
Homeowner’s insurance is often paid in advance for the first full year. Also, some taxes
and other fees need to be paid in advance.
The Loan Costs and Other Costs tables are disclosed under the heading Closing Cost Details on page 2 of the Closing Disclosure. The number of items in the Loan Costs and Other Costs tables can be expanded and deleted to accommodate the disclosure of additional line items and keep the Loan Costs and Other Costs tables on page 2 of the Closing Disclosure.
However, items that are required to be disclosed even if they are not charged to the consumer (such as Points in the Origination Charges subheading) cannot be deleted.
The Loan Costs and Other Costs tables can be disclosed on two separate pages of the Closing Disclosure, but only if the page cannot accommodate all of the costs required to be disclosed on one page.
An escrow or impound account is a special account where monthly insurance and
tax payments are held until they are paid out each year. You get a statement showing
how much money your lender or mortgage service plans to require for your escrow or
impound account. You also get an annual analysis showing what happened to the
money in your account. Your lender must follow federal rules to make sure they do not
end up with a large surplus or shortage in your escrow or impound account.
Page 3 of the Closing Disclosure
The third page displays a Calculating Cash to Close table similar to the table on Page 2 of the Loan Estimate. This table provides a comparison to the charges disclosed on the Loan Estimate. The rest of the page shows the summaries of the borrower and seller costs and credits, similar to the current Page 1 of the HUD-1 Settlement Statement.
Calculating Cash to Close
Closing costs are only a part of the total cash you need to bring to closing.
Summaries of Transactions
The section at the bottom of the page sums up how the money flows among you, the
lender, and the seller.
Page 4 of the Closing Disclosure
The fourth page contains disclosures about other terms of the loan, including:
- Whether the loan is assumable
- If the loan has a demand feature
- May impose a late payment fee and when it may be incurred
- If the loan has a negative amortization feature
- Whether the lender will accept partial payments
- Informs the borrower the lender will have a security interest in their property.
The page also includes a table describing what charges will be impounded and how much will be collected each month. Finally, the page includes adjustable payment and interest rate tables if they are applicable to the loan.
Page 5 of the Closing Disclosure
On the fifth page under the heading “Loan Calculations” the consumer will find the:
- Total of payments over the life of the loan.
- Finance charge
- Amount financed
- Annual Percentage Rage (APR)
- Total interest percentage information
Under “Other Disclosures” the consumer will find information about the:
- Appraisal (if applicable)
- Contract details
- Liability after foreclosure
- Refinance information
- Tax deductions
At the bottom of the page is the Contact Information and Signature lines. If signature lines are included, the following disclosure is used: “By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form” indicating a signature is intended only as a receipt of the form.
In addition to paying back the amount you are borrowing, you pay a lot of interest over the
life of the loan. This is why it is worthwhile to shop carefully for the best loan for your situation.
Annual Percentage Rate (APR)
Your APR is your total cost of credit stated as a rate. Your APR is generally higher than
your interest rate, because the APR takes into consideration all the costs of your loan, over
the full term of the loan.