No one likes to read mounds of paperwork when buying a home. But there’s one form you definitely don’t want to gloss over. The closing disclosure form is one of the most important documents you’ll review when buying a home. It explains the terms and costs of your mortgage.
Lenders must provide the closing disclosure form — CD for short — at least three business days before closing. The CD is the final report of the fees you will pay on your home loan. It’s a follow up to the good-faith estimate or loan estimate — LE for short — that was provided as an estimate when you first applied for your mortgage.
Here’s a sample of the closing disclosure form. Before August 1, 2015, the CD was known as the HUD-1 settlement form. The CD is designed to be a new and improved version of the HUD-1. It was created to be less confusing and easier to understand. It’s also required that it be provided to home buyers three days before closing, compared with the day of closing for the HUD-1.
It’s extremely important that you read your closing disclosure form and compare it to what you saw on the loan estimate. In most cases, the fees and terms of your loan should be close or the same as when you first applied for your loan. In other cases, there will be some significant differences, which can be explained by your loan officer. Here are some other items the Consumer Financial Protection Bureau recommends you should review:
Loan amount: This is the total amount you’re borrowing.
Interest rate: Make sure the rate is the same as the rate you locked in.
Monthly Principal & Interest. This is the amount you’ll pay each month in principal and interest only. This amount does not include homeowners insurance, mortgage insurance, homeowners association dues (if applicable) and property taxes. Those are included in Estimated Taxes, Insurance & Assessments.
Estimated Total Monthly Payment: Your total monthly mortgage payment, with principal, interest, insurance and taxes.
Loan term: The term of your loan in years. The most common loan term is 30 years.
Loan type: Check to see that your loan type (fixed rate or adjustable) is correct.
Cash to close amount: This is how much money you need to bring on closing day in down payment and closing cost funds.
Closing costs: Generally, home buyers pay an estimated 3 percent to 4 percent of the home’s sale price in closing costs.
Estimated total monthly payment: Your monthly payment may change over time as your property taxes and homeowners insurance costs increase. If your loan has an adjustable rate, your monthly payment also can change when the loan rate adjusts.
Once you’ve received your closing disclosure, it’s important to take the time to review it and ask any questions. Don’t hesitate to ask questions! At Primary Residential Mortgage, we believe home buyer education is extremely important. Asking questions is the key to becoming an educated home buyer and feeling comfortable with your purchase.