We’ve broken down each component of the Closing Disclosure below. This section of the disclosure statement lays out the terms of your mortgage. It provides an accurate snapshot of how much you’ll pay and for how long. It’s broken down into five parts: This section of the Closing Disclosure breaks down the major components of your mortgage loan and displays how the payments change over the years. It gives you the best picture of what you owe on a month-to-month and year-to-year basis. Not all mortgages have an escrow account, but if you’ve chosen to have one, your estimated monthly payments will show up here. If anything in this section is vastly different from what was stated in the Loan Estimate, ask your lender why. It's important to make sure that you can afford the estimated total monthly payments throughout the entire term of your mortgage.Loan Term
Projected Payments
- Estimated taxes, insurance and assessments: You may choose not to escrow your taxes and insurance. If so, they’re laid out in this section of the document. Items not in escrow may include property taxes, homeowners insurance and homeowners association dues. Be sure you budget for these costs throughout the year.
Costs At Closing
Closing costs are broken down even further in this section of the document to give you a clear picture of what you’ll pay to your lender during closing. Closing costs will typically be about 3% – 6% of your loan amount.
Included at the bottom of the itemized costs, you’ll find the cash to close amount, which is the full amount of money you’ll need to have on hand at closing. The amount listed will be higher than the sum of your total closing costs because it includes your down payment amount.
Loan Costs
This portion of the Closing Disclosure is a comprehensive overview of the fees involved in getting your mortgage.
- Origination fee: Typically, this is anywhere from 0.5% – 1% of the loan amount. The origination fee covers all of the administrative costs associated with your mortgage application.
- Mortgage points: If you’ve chosen to buy mortgage points, it’ll be reflected here. Points reduce the interest rate on your loan. One point equals 1% of the loan amount. For example, one point will cost you $2,000 if your loan is $200,000. Mortgage points, along with the origination fee, are listed on the Closing Disclosure under Origination Charges.
- Application fee: The mortgage application fee covers the cost to process your application. The total amount varies by lender.
- Underwriting fee: When a lender underwrites your loan, they take a look at your full financial picture to determine how risky you’d be to lend to. The underwriting fee is included in the loan costs.
- Services borrower did not shop for: This is a list of required services that the lender chose. It can include an appraisal fee, credit report fee, flood determination fee, tax monitoring fee and tax status research fee. Check to be sure that these fees match the fees listed on your Loan Estimate. The costs should also be similar, though they might have changed slightly.
- Services borrower did shop for: These are the third-party services that you might have bargain-hunted on your own. They could include a pest inspection, survey and any title-related services (including title insurance, settlement agent and title search fees).
Other Costs
There are other costs that could be wrapped up in your mortgage, including taxes and government fees, prepaids, initial escrow payment at closing and more.
- Taxes and other government fees: You’ll see recording fees here, which are the fees for legally entering the new deed and mortgage into the public records. They include transfer taxes, which are paid when a property changes hands or when a mortgage loan is made. City, county and possibly state taxes are also included.
- Prepaids: This section will tell you how much money you need to put in escrow for certain prepaid costs, whether it’s a homeowners insurance premium, a mortgage insurance premium, prepaid interest or property taxes.
- Initial escrow payment at closing: Your initial escrow payment will include homeowners insurance, mortgage insurance and property taxes, and here, you’ll see the full amount you’ll need to pay at closing.
- Other: There may be other expenses you’ll need to pay at closing, including homeowners association fees, a home inspection fee, a home warranty fee, real estate commissions and title insurance.
At the end of this section, all other costs are added together, so you get a comprehensive overview.
Calculating Cash To Close
Cash to close reflects the full amount you need to bring to closing and includes any deposits you’ve already paid to the seller. It will also include how much money, if any, the seller is planning to pay toward your closing costs – known as seller concessions. These are closing costs that you negotiate with the seller to pay.
Summaries Of Transactions
This section is a side-by-side view of the borrower’s and seller’s costs at closing. You’ll be able to see adjustments for any items that are paid by the seller in advance, including fees that the seller has already paid, such as taxes, homeowners association fees and assessments. It also allows you to see what’s due from the seller at closing (such as payoff amounts of all mortgages, closing costs, seller credits and more).
At the bottom of this section, there is a full breakdown of the amount due from the seller and the amount due to the seller at closing. Additionally, it displays what you owe and what you’ve already paid prior to closing.
Loan Disclosures
The loan disclosure section will show more detailed information about the conditions of your loan. These disclosures include the following:
- Assumption: This section will tell you whether the loan is assumable, which simply means that the loan can be transferred to another person with little to no change in terms including the interest rate.
- Demand feature: Whether your loan includes a demand feature will be indicated here. If your loan does have a demand feature, the lender can require you to immediately pay the entire loan balance (principal and interest) at any time.
- Late payment: Making your payments on time is extremely important to remain in good standing with credit bureaus. However, it’s good to know in advance whether your loan imposes a late payment fee and when it will incur.
- Negative amortization: Negative amortization means that the loan does not fully mature. In other words, any interest payments not met throughout the term of the loan are added onto the original principal balance.
- Partial payments: Let’s say you can’t make a full mortgage payment during a particular month. This section will indicate whether the loan allows for partial payments. Depending on your loan’s conditions, your partial payment may be held in a separate account instead of being applied toward your loan, and you may also be charged a late fee until you make your full payment. It’s important to know what will happen if you cannot make a full payment.
- Security interest: A security interest simply means that if you stop making payments or don’t fulfill your mortgage agreement, the lender can take your home and sell it to pay off the loan.
- Escrow account: This part is a detailed overview that explains your escrow account (including whether you have one or not), the homeownership expenses included in the escrow account and how much you’ll be required to pay into escrow. If your Closing Disclosure doesn’t provide an escrow account overview, but you’d prefer to have your lender pay your property taxes and homeowners insurance every month, talk to your lender.
Loan Calculations
This section tells you how much your loan will cost you over the loan term. In other words, it’ll summarize all the payments you’ll make over the life of the loan, including finance charges, the amount financed and the annual percentage rate (APR).
Other Disclosures
In this section, you’ll find general information about the appraisal (if applicable), contract details, refinance information and tax deductions. All of this is just general information, though it will indicate in your loan whether the laws in your state will specifically protect you from liability for the unpaid balance after foreclosure.
Contact Information And Confirm Receipt
Finally, the last section includes the Contact Information and Signature lines. You’ll see the following: “By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form.” In other words, signing the form does not require you to take the loan.
