Closing Disclosure Explained: What to Compare Before You Close

The Closing Disclosure is the lender's final statement of your loan and your costs. This guide follows the Consumer Financial Protection Bureau's explainer, which pairs a sample form with items to check. If you have not read it yet, start with the Loan Estimate guide, because this form is checked against that one.

When it arrives

The CFPB says lenders are required to provide your Closing Disclosure three business days before your scheduled closing, and tells you to use those days wisely, because now is the time to resolve problems. Its instruction for anything that looks different from what you expected is the same throughout: ask why.

Put a reminder in your calendar for the day it is due. If it has not arrived, call your lender and your closing agent rather than waiting. Depending on where you live, the CFPB notes, the closing agent may be called a settlement agent, escrow agent or closing attorney.

What to compare against your Loan Estimate

The CFPB's checks are mostly comparisons with your most recent Loan Estimate. Keep both forms open side by side.

The loan amount line deserves a second look. Rolling closing costs into the loan lowers what you pay at closing, but the CFPB points out that it adds to your overall costs because of the extra interest.

The closing costs pages

Closing costs are the upfront costs of the loan and of transferring ownership, and the form breaks them into groups: origination charges, points, taxes and other government fees, prepaids, the initial escrow payment, and other costs. Total Closing Costs excludes your down payment, and that is different from Cash to Close.

Two groups of third-party services need a closer look.

Services borrower did not shop for. These are required by the lender. The CFPB says to compare them with the services you could not shop for and could shop for on page 2 of your Loan Estimate. There should be no new services that were not on the Loan Estimate. The costs should be similar but may be somewhat different.

Services borrower did shop for. These are the providers you chose. If a service or a company in this section is unfamiliar, ask your lender what the charge is for and how the company was chosen.

Also check lender credits, which are a rebate toward closing costs that typically come with a higher interest rate than you would have had otherwise, and points, which are paid up front for a lower rate.

Seller credits and cash to close

If the seller agreed to contribute to your costs, check that the seller credit reflects what you agreed. If the seller agreed to pay particular costs, they may appear as Seller Paid line items on page 2 instead.

The cash to close section shows what is due from you at closing, adjustments for items the seller paid in advance (which you reimburse) or left unpaid (which the seller reimburses you for), and what has already been paid by or on behalf of you. Cash to Close is the actual amount you pay at closing, typically by cashier's check or wire transfer. Ask your closing agent how to make that payment.

The loan terms and escrow sections

Read the sections about your obligations as carefully as the numbers.

• Late payments and partial payments. Learn the late fee in advance. The lender may not accept a partial payment, may hold it in a separate account, may keep charging late fees, and may report you to the credit reporting agencies.
• Escrow. An escrow account lets you pay homeowner's insurance and property taxes monthly instead of in a lump sum. Ask what is included. The CFPB notes that homeowner's association fees are often not.
• Escrow waiver fee. If you have no escrow account, check whether a fee applies. If you would rather have the account, talk to the lender.
• Demand feature, negative amortization, security interest. A demand feature lets the lender demand the entire loan at any time. Negative amortization means your balance can grow even if you pay on time. The security interest lets the lender foreclose if you do not repay. The CFPB says most loans do not have negative amortization.

Finally, read your note and security instrument, which is also called the mortgage or deed of trust. The CFPB has a guide to closing forms for this.

What to do if something changed

1. Mark every difference from your most recent Loan Estimate.
2. Call your lender and ask why, line by line. The CFPB's wording for the big items is to call immediately.
3. Ask for a clear explanation of any new service, and whether it came from a provider you chose.
4. If the rate changed and you had locked it, ask what circumstance allowed the change.
5. Ask the closing agent and your real estate attorney, if you have one, about anything you do not follow.

Worked example

Dev opens his Closing Disclosure and lays it beside his Loan Estimate. The loan term and type match. The loan amount is higher, and the lender says some closing costs were rolled in, so he decides whether he prefers a smaller payment at closing or less interest over time. A title service he does not recognize appears under the services he shopped for. He writes down the name and asks the lender what it covers and how it was chosen. The next day he gets a written answer, which leaves him time to decide before closing.

When to ask a professional

This guide explains a government form and is not legal, tax or mortgage advice. If a number will not reconcile or a loan feature surprises you, ask your lender, your closing agent or a real estate attorney before you sign.

Questions people ask

What if my Closing Disclosure arrives late?

The CFPB says lenders are required to provide it three business days before your scheduled closing. If it is not in your hands by then, call your lender and your closing agent and ask about your closing date.

What if cash to close is different from my Loan Estimate?

Ask the lender to explain why, as the CFPB advises.

Where can I follow the whole process?

See the home buying timeline checklist and the final walkthrough checklist.

Sources (1)

1. CFPB, Closing Disclosure explainer consumerfinance.gov