Parts of a Loan: The Closing Disclosure

Published on January 1, 2021 under First-Time Home Buyers

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A home loan is a complicated process; when you are buying your first home, it can take a while to wade through all of the jargon and understand what's going on.

As part of this process, you will receive a closing disclosure.

What is a Closing Disclosure?

A closing disclosure is a document that lays out the terms of your loan in a way that easily allows you to double check and confirm that everything is correct.

The document is five pages long and will cover loan terms, projected payments, closing costs, a transaction summary and further information about your loan. Closing disclosures are made on standardized forms, so everyone gets the same information.

When Will You Get a Closing Disclosure?

Lenders are required by law to give you the closing disclosure three days before the closing date. Those three days are intended to give you enough time to go through the document and check it for errors.

As this is the final loan amount, you should be thorough in your examination of the disclosure to make sure the document is free of any errors. If you do find mistakes, you should contact your lender right away to reduce any delay in closing. Lenders are human and errors such as a misspelled name can occur. The Consumer Financial Protection Bureau provides this tool to help you understand the closing disclosure and check it for errors and for anything that looks different from what you expected. You can also compare it with your final loan estimate.

Why Is It Important?

The primary purpose of the closing disclosure is to help ensure that the details of the loan are correct before you sign closing documents and pay fees, and to protect you from any last minute surprises a lender might spring on you. The standardized form and three-day period are both designed to make sure that you have the time and ability to make sure it is correct.

This helps avoid any last minute issues at closing. If you spot a mistake at the actual closing meeting, then that can cause problems. It does not mean you are clear to close - things can still change, and if your credit score drops precipitously for some reason, the lender can still pull the loan until it has been signed.

What Should You Do With It?

As previously mentioned, you should check the closing disclosure thoroughly for errors. Ideally, do so as soon as you get it from the lender, to reduce the risk of delays in closure.

If you find an error, inform your lender right away. It doesn't matter how minor the error is; a typo can be more significant than you think it is. If you are able to verify that it is correct, you should sign it. It must be signed by everyone who is on the title, whether or not they are liable for the loan. Your signature is your acknowledgment that the disclosure is correct and accurate. The loan is still not final until the rest of the closing procedure is completed. These days, most lenders will have you electronically sign the documents, which means they will get a notification immediately. Otherwise, you should physically return the closing disclosure to your lender.

What Happens Next?

The closing meeting will happen three days after you sign the closing disclosure (this is a good reason to sign it electronically if possible, as this starts when your lender gets it.)

At that point, you don't have to worry about it, but you should bring a copy to closing, just in case something goes sideways during those three days.

The closing disclosure is important. It's part of your rights as a consumer to know exactly what you are signing up for when you sign a mortgage, and the closing disclosure ensures that. If you have any more questions, reach out to First Savings Mortgage. One of our expert loan officers will help you understand your closing disclosure and make sure closing goes smoothly.

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