October 22nd, 2018 3:07 PM by Jackie A. Graves, President
Review your closing disclosure to avoid
surprises at the closing table.
Refinancing or closing on a new home is an
exciting time, but don't skip off to the signing table before reading the
closing disclosure. After closing, the property and all its financial
responsibilities will be yours. For this reason, it is essential that you give
this document your utmost attention. Your signature on the closing disclosure
indicates that you accept each of the conditions and expenses that are listed
on the paperwork, whether they're accurate or not.
"Mistakes can cost
people thousands of dollars," says Todd Huettner, president of Huettner
Capital, a real estate lender headquartered in Denver. "You'll want to
look at it carefully before you go into closing, but many people don't."
If you notice fees you don't recognize or other serious questions arise in the
middle of your closing meeting, you might not know what to do, Huettner says.
Enter closing with confidence by
becoming familiar with the closing disclosure. Here is what you need to know
about this paperwork and what to do should you spot anything amiss.
You've Got Three Days
As a homebuyer, you have three
business days to look over the closing disclosure before the closing date.
Reviewing this document and identifying areas of concern will take time, so
resist any temptation to procrastinate. Instead, read it until you understand
every word and each number.
This is also your chance to weigh
whether you can truly handle the payments and
are comfortable with all the costs associated with homeownership.
"Use these three days to the
fullest," says Samantha Joseph, a Jacksonville, Florida-based lawyer and
branch operations manager for Stewart Title Co. "Ruminate over the terms,
make sure it's right for you."
Don't Be Overwhelmed by Closing Disclosures
While the impact of a closing
disclosure can be intimidating, its size is not. The disclosure consists of
five pages and lists all the facts and figures about your mortgage. The lender
prepares the disclosure, and toward the end of closing, the document will be in
your hands for review.
No matter where you live in the U.S.
or which lender you've chosen, the disclosure follows the same basic format. If
you don't feel comfortable reviewing the paperwork by yourself, the Consumer
Financial Protection Bureau has an interactive tool on its website to help
you navigate the closing disclosure.
What to Expect on Each Page
Read each page of the closing
disclosure before you compare it with the initial loan estimate that you
received when you were approved for the mortgage. This preparation will help
you organize your thoughts.
Page 1. The closing disclosure begins with
the names and addresses of all involved parties, relevant dates and the
property's sale price. The length and type of loan will be clearly indicated. A
breakdown of the loan's elements will follow:
Page 2. This is a detailed explanation of
the closing costs, listed in two subcategories. The first subcategory is the
costs associated with the loan. The second consists of all the other costs to
close, such as recording and transfer fees. It will also include your portion
of the transfer taxes and insurance charges.
"As the homebuyer, these two
categories can be confusing," says Huettner. "The best way to look at
it is to divide the fees into two logical buckets. Some are only associated
with the loan. The rest are the fees you would be charged even if you just paid
cash for the home. The end figure equals your closing costs."
Scan each of the closing fees for
legitimacy and accuracy. There should be no double or incorrect charges. Some
mistakes might be minor, such as duplicate credit report charges, but others
can be far more expensive.
"For example, if you will be
paying homeowner association fees, confirm that you're not being held
responsible for the past owner's dues," says Joseph.
Page 3. This is where you'll see a breakdown
of the amount of cash you will need to present at closing. The final figure is
a culmination of adjustments for credits and expenses you've already paid, and
the costs that remain outstanding. Read through each line item to ensure you've
been credited for all transactions and that nothing new has been added.
Flip to the first page of the closing
disclosure. The final cash to close figure should be identical to the one on
4. This section
begins with a description of what the lender will do if you do not make your
payments by the due date or if you only make a partial payment. Being aware of
these consequences prior to entering the contract is important, as it will help
you make wise decisions in case you experience future financial difficulties.
Information about escrow accounts is
also on this page. Odds are you have one, and if you do, its costs will be
embedded in your monthly payment. You'll see what is included, which are
usually property taxes and homeowners insurance. If you decide against an
escrow account, you may spot an opt-out fee from the lender.
Page 5. Take a deep breath because on the
last page you will see the total amount of interest the loan will cost. For a
$200,000, 30-year mortgage at a 4.65 percent rate, the total interest will be
A brief explanation about foreclosure
and refinancing follows. Then, the disclosure specifies the lender, real estate
brokers and settlement agent, along with their phone numbers and mailing and
email addresses. "You may be surprised by how often you may need to
contact them, especially in the beginning, so it's worth a double-check,"
At the very end of the closing
disclosure will be a place for you to date and sign. But don't. That will come
Compare Your Closing Disclosure With Your
After reading the closing disclosure at least once, take out the
initial loan estimate from your lender and conduct a side-by-side comparison.
The loan estimate, which the lender sends after approving your loan, shows the
estimated interest rate, monthly payment, closing costs and other details about
the loan. The two documents won't look exactly alike, but the figures and
expenses ought to be the same or similar. "If it's within a few hundred
dollars, that's what I consider a bull's-eye," says Huettner.
As you go through the two forms, highlight anything on the
closing disclosure that is not on the estimate or that doesn't seem right. This
is your time-sensitive chance to obtain clarification, should you need it. Once
you've identified discrepancies, bring your loan officer into the fold.
Heidi Barnes, a Sacramento, California, senior loan officer for
Reliant Lending, says, "It's the borrower's responsibility to understand
the disclosure before signing it, but it's the loan officer's to be available
for any questions. Buyers should see consistency in the numbers for such costs
as the underwriting, appraisal and title fees. Others can vary, but they still
should be close to what is on the estimate. The days of prepaid interest might
be different, and homeowners insurance costs might have gone up a little."
Dispute any charges you don't believe should be on the closing
disclosure form. The loan officer can rectify mistakes, but if you don't say
anything, the charges will go through.
The most crucial figure on a closing disclosure is the interest
rate. If it's even a fraction of a point too high, it will result in the
difference of many thousands of dollars in additional interest over the life of
the loan. Talk to your loan officer about this immediately so it can be
changed. It's possible that the new rate is correct, and if that's the case,
the lender will explain the reasons.
Reviewing the Disclosure at Closing
At the end of the three-day period, you will attend the closing
along with key players, typically including the seller's real estate agent,
your agent, an escrow officer and sometimes an attorney. You will be expected
to sign the closing disclosure and present the cash to close.
If all goes according to plan, you will have addressed and
mitigated any discrepancies about the closing disclosure in advance. However,
if it gets to this stage and you're still (or suddenly) uneasy, back away from
"Don't be afraid to stop and ask even more questions about
the disclosure," says Huettner. "Take a break. Step out of the room,
make a few phone calls to people you trust. Collect yourself and look at the
paperwork again in private. It's not out of the ordinary for buyers to remember
In this high-pressure environment, it takes bravery to stop the
transaction. Everyone from the seller to the lender might be confused and
exasperated. But if you truly feel uncomfortable with what's on the closing
disclosure, wait and ask more questions. Never sign an incorrect contract or
one that you can't fulfill.
Pull your agent or loan officer aside and discuss your concerns.
You chose that person, so you should trust his or her answers and
If you must put the entire transaction on hold until the closing
disclosure is tweaked to your satisfaction, ask about the ramifications of a
delay. "It's possible that you will lose your earnest money," which
is the deposit you gave when the seller accepted your offer, says Huettner. The
earnest money is typically between 1 and 3 percent of the sale, so you'd be
looking at a $2,000 to $6,000 loss for a $200,000 home.
Or, you may be charged a penalty of $250 a day until you close,
Huettner says. "They may have another buyer and are willing to go in another
direction for the sale." That's a risk you may or may not want to take.
Thankfully, negative developments can be avoided by thoroughly
reading the closing disclosure then hammering out any problems within the
three-day waiting period. Do so, and you'll be ready to sign on the bottom line
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