The Closing Disclosure documents the actual terms of your loan transaction. You should receive it no later than 3 business days before consummation. It must be in writing – paper or digital.
If the loan terms or costs change prior to consummation, your lender must provide a corrected disclosure AND an additional 3-business-day waiting period until loan consummation.
Waiving the 3-day waiting period is only permitted in certain circumstances, and only when the waiting period would cause a bona fide personal financial emergency.
Page 3 of your Loan Estimate includes measures to help you compare loans.
“In X Years” shows the total amount you will have paid in that time, and the dollar amount applied to your loan principal. The ratio between total paid and principal reduced may change over time.
The APR shows interest PLUS fees as an annual ratio – APR is the actual percentage this loan costs per year.
The TIP figure relates the interest you will pay over the life of the loan to the loan amount. For example – a TIP value of 25% on a $100,000 loan means you will pay $125,000 – $100K principal plus $25K interest – over the life of the loan.
Page 2 of the Loan Estimate provides the current ESTIMATED cash to close. Some costs will stay the same between estimate and closing. Some will change.
- A – Origination Charges – should match.
- B – Can’t Shop – 10% Tolerance
- C – Can Shop – no tolerance limit, BUT IF you select a provider from your lender’s list their actual cost should be no more than 10% greater than the estimate.
- E – Recording Fees are also subject to 10% tolerance
- F – Prepaids, G – Initial Escrow and H – Other, such as Owner’s Title may vary from the Loan Estimate without tolerance limits.
These estimates of closing costs plus loan details, Down Payment, Deposits Credits and Adjustments are used to calculate your estimated cash requirements when the loan finally closes. Consider the possible changes and tolerances when evaluating a loan decision.
Real estate transactions require taxes, certain pre-payments, and escrow funding.
Recording fees are charged by government agencies for keeping legal ownership records, while “transfer taxes” may be imposed by states, counties and municipalities on real estate ownership transfers.
Prepayments may include homeowner’s insurance premiums on the property mortgage insurance, if required property taxes for a period of months in advance, and prepaid interest, typically for the period from closing to the first mortgage payment.
Escrow funding may also be required against future annual charges for homeowners insurance, mortgage insurance and property taxes.
Title insurance on YOUR legal ownership – “Owner’s Title Policy” – may be designated as optional, which only indicates that it is not required by this creditor.
Some of these “Other Costs” may vary substantially between Loan Estimate and Closing Disclosure ask your lender about the tolerance rules or watch the video “Could My Loan Cost Exceed The Loan Estimate?”
These costs are paid to outside parties and YOU are free to shop and compare providers for a variety of services. These might include pest inspection, or a survey to verify property lines or a range of Title-related services.
Title services might include:
- a Lender’s title policy, which protects their legal interest in their loan collateral- usually the property itself
- settlement agent fees, paid to the individual or company responsible for facilitating the final transaction
- Title Search, which clarifies and documents legal ownership of the property
- a title insurance binder, which allows potential future use of the current title search results, conditions and exclusions for a short period to lower the cost of future title insurance.
If you select service providers from the list provided by the lender, their fees cannot change by more than 10% between the Loan Estimate and the final Loan Disclosure. If you select other providers the lender is not responsible for changes in those costs.
These costs are paid to outside parties, not the lender, but you don’t get to choose them. They may include:
- appraisal, which puts a value on your property on the lender’s behalf
- a credit report on you
- fees to assess flood risk of your property, or for ongoing monitoring of flood zone changes related to your property
- tax monitoring to keep track of your property tax payments
- tax status research to assess the state of tax payments on the property.
While you can’t shop for these services, the price for these services in your final loan disclosure MUST match the price on the Loan Estimate; items in “Cannot Shop” have 0 tolerance for change.