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What is a closing disclosure?

What is a closing disclosure?

When first-time shoppers are working toward completing the home sales process, there may still be many questions they have about what's required of them or what they'll need to know. The fact is that there's a lot of jargon that goes into every step of obtaining a mortgage, bidding on a home and closing a sale, so if people have questions or are unsure of certain things, it's important to get the answers sooner rather than later.

One of the big questions people may have as they move toward wrapping up a sale is what is meant by "closing disclosure." In short, it's a five-page document that provides all the details of a mortgage deal in what is supposed to be clear and easy-to-understand terms, according to the Consumer Financial Protection Bureau. Lenders are required by law to provide mortgage applicants with this disclosure at least three days before they are scheduled to close on a loan, so that they have time to study the details and truly understand it.

A closer look
On the first page of a disclosure form, lenders must include basic information about the date of the loan and its general terms (i.e. how long it lasts and whether it's a fixed- or adjustable-rate loan), as well as the value of the loan, the associated interest rate, the size of monthly payments, prepayment penalties and so on, according to Home Closing 101. That includes what monthly payments look like in the first several years of the loan – with mortgage insurance costs factored in – and then what costs will drop to in the few decades beyond that period.

Also included on the first page is a breakdown of closing costs, the report said. But on the second page, there is a more detailed breakdown of what goes into those closing costs, such as underwriting and application fees, title details, taxes and so on. Along similar lines, the third page includes a summary of the cash needed to close the deal.

According to Interest.com, the closing cost details will also include information about whether borrowers will be charged points on the loan as a means of "buying down" the mortgage rate they pay over the life of the loan. While this can add hundreds of dollars or more to their costs – depending on how much they want to cut their rates – buyers are often wise to make that investment.

The last two pages
Finally, on pages 4 and 5 of the closing disclosure, there's additional information about the loan terms, including issues like whether lenders will accept partial payments or if there will be an escrow account associated with the mortgage, Home Closing 101 noted. Finally, on the last page there are a number of other disclosures such as how much of the loan will be financed, the total cost of the mortgage over the life of the loan, and basic contact information for others involved in the sale, such as real estate agents or brokers.

Because of these issues, first-timers should never be afraid to talk to their real estate agents or financial professionals to make sure they can get a better handle on all aspects of the mortgage process.

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