Have you found the perfect house and are in the process of purchasing it via a mortgage loan? Here’s what you need to know before penning down your signature on the mortgage contract and closing disclosure.
What Is a Closing Disclosure?
Because of TILA-RESPA Integrated Disclosures or TRID Rules, your lender is obligated to provide you with two documents before closing on a house. These are the Loan Estimate and the Closing Disclosure.
A closing disclosure is a document that lists and describes all important details in your mortgage loan. This includes your loan amount, interest rate, loan fees, insurance, penalties, contingencies, and other conditions. If there’s anything you need to know about your mortgage plan, it’s in your closing disclosure. The difference between a loan estimate and a closing disclosure is that the latter is like your final contract, while the loan estimate is a temporary, adjustable estimate.
It’s crucial to review a closing disclosure because mistakes in the calculations are possible. Likewise, your lender might’ve changed the terms without you knowing it. This is a common mistake, especially when there is inefficiency in communication along the way. Once you sign the closing disclosure with errors in it, you might be surprised to see that your mortgage is way higher than what you initially expected. And it will be a stressful and time-consuming process to have your mortgage amended after that.
Things to Check in Your Closing Disclosure
The TRID Rule mandates lenders to provide the closing disclosure three (3) days before the target closing date. This gives enough time for the borrowers to review and make amends in the disclosure before you finalize your home purchase. If you are working with a real estate agent, your agent can help you review your disclosure. Nevertheless, apart from your personal information, here are some of the most critical items to check in your mortgage closing disclosure:
Loan Type and Amount
Lenders provide different types of loans. Typically, loan types are differentiated based on the term length. If you initially opted for a 30-year adjustable-term loan, for example, then this has to be reflected in your closing disclosure. In addition, your monthly mortgage payment has to coincide with the amount in your final loan estimate.
Interest Rate
Checking the interest is critical because of the rate lock. Once you lock in your rate (or sign the closing disclosure), it cannot be modified immediately anymore. For some lenders, rates are already locked once they issue the loan estimate. So if you need to adjust your interest rate, it would be best to do so before you sign the closing disclosure.
Penalties
What happens when you fail to pay your mortgage on time? Do you have any grace period if you fail to pay your mortgage? Or how many failed payments are allowed until your mortgage defaults? These are some of the questions you need answers to when looking at the penalties section. The terms should again coincide with what is seen on your most recent loan estimate.
In addition, we have what is called a prepayment penalty. Lenders usually charge a prepayment penalty if ever you decide to pay your total mortgage loan in advance. Lenders issue a prepayment penalty because it means that you’ll no longer pay for time-based interests — lenders’ bread and butter.
Taxes and insurance
Your tax and insurance budget covered by the loan is often deposited in an escrow account as well. However, not all taxes and insurance are placed in escrow. Likewise, you can request an escrow waiver so your lender will not fully charge you a fee for taxes and insurance.
Loan Costs
Loan charges include the underwriting fee, your application fee, and all other service charges related to the processing of your loan. Loan costs are usually divided into three (3) categories:
- The Loan Origination Fees
- Services The Borrower Did Not Shop For and;
- Services The Borrower Shopped For
“Services The Borrower Did Not Shop For” are items that are required by your lender, which you acquired from a 3rd party service provider.
Closing costs
The closing costs section should specify the portion of the closing costs you have to pay in cash. This includes your downpayment, the financed amount, seller credits, funds from the borrower, and more. Again, the values should coincide with what is on your loan estimate.
Escrow Details
Escrow is where your lender deposits all the money used to pay for your homeownership costs. Take note that not all homeownership costs can be placed in escrow like the homeowner’s association fee. You’d want to know what fees are not included in escrow so you can allocate the budget in advance.
The entire closing disclosure is usually a 5-page document. It would be best not to rush when reviewing it and consult a professional for items you don’t fully understand. If you wish to work with a real estate broker who can help you review your closing disclosure thoroughly and close your dream house fast, get in touch with HomeSold GA at 770-668-4888. We can also find the perfect home for you and make the entire home buying process smooth and convenient — things you most deserve during this milestone.