Closing Disclosure: What It Is And How To Read It (2024)

We’ve broken down each component of the Closing Disclosure below.

Loan Term

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:

  • Loan amount: This is the total amount you plan to borrow after you subtract the down payment and add any fees or costs rolled into your loan. If this amount has increased from your Loan Estimate and you aren’t sure why, ask your lender.
  • Interest rate: The interest rate is the fee you pay for borrowing money. Your interest rate represents a percentage of the loan amount that you pay annually as interest for borrowing money, and it’s included in your monthly mortgage payments. Your interest rate shouldn’t change from what’s on your Loan Estimate if you’ve locked in your rate.
  • Monthly principal and interest: Here, you’ll see the interest and principal you’ll pay. Note that if your monthly payment includes mortgage insurance or escrow payments, those will not be included here.
  • Prepayment penalty: Some lenders charge a prepayment penalty fee when borrowers pay off their mortgage early. This doesn’t apply to any mortgage with Rocket Mortgage®.
  • Balloon payment: This is a one-time payment that is due at the end of the loan. If you have a mortgage that requires a balloon payment, your payments are typically lower during the years leading up to when the one-time payment comes due. It can be risky because you may owe a large amount at the end of the loan. Rocket Mortgage doesn’t offer mortgages that have a balloon payment.

Projected Payments

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.

  • Payment calculation: Your mortgage loan consists of the principal and interest, mortgage insurance (if applicable) and the estimated escrow that’s used to pay your homeowners insurance and property taxes (if you have one). This section shows you what all of those payments will be during the terms of your mortgage. If your mortgage payment can change (for example, an adjustable-rate mortgage), there will be a calculation for what your maximum payment can be at each change based on interest rate caps.
  • Estimated total monthly payment: This is the amount you’ll pay each month, including the principal, interest, mortgage insurance and escrow amount. An escrow account is used by your lender as a way to pay your property tax bills and homeowners insurance premiums.

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.

  • 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.

Closing Disclosure: What It Is And How To Read It (2024)


Closing Disclosure: What It Is And How To Read It? ›

A closing disclosure is a mandatory form provided to you by your lender three days before closing on a home. It contains all of the necessary details about your mortgage: the loan terms, what your monthly payment will be, any required fees and the closing costs.

How do you explain closing disclosure? ›

It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs). The lender is required to give you the Closing Disclosure at least three business days before you close on the mortgage loan.

How do you read a closing statement? ›

The closing statement typically lists fees in two columns, one detailing the buyer's expenses and one detailing the seller's expenses. The amount of cash the buyer must give the seller has its own entry at the bottom of the document.

Does a closing disclosure mean clear to close? ›

Clear to close means you're ready for the closing process, while closing refers to the act of closing on your mortgage loan. After you've been cleared to close you'll need to sign your closing disclosure, do a final walkthrough and attend your closing.

Does closing disclosure mean final approval? ›

Receiving a Closing Disclosure is a significant milestone in the loan process, but it does not automatically mean your loan is approved.

Can you be denied after closing disclosure? ›

Yes, you could get denied after you've been cleared to close. In the days leading up to your closing, do your best to make sure nothing happens that makes you look like a riskier borrower. Your safest bet is to avoid making any financial moves during this period, such as: Apply for any new credit cards or loans.

What happens after signing the closing disclosure? ›

Loan funding: Once you sign the closing disclosure, your lender reviews the document to ensure everything is in order. If there are no issues or discrepancies, they will proceed with funding the loan. This involves transferring the approved loan amount to the designated account or issuing a check.

How to read a seller closing disclosure? ›

The Closing Disclosure walks you through important aspects of your mortgage loan, including the purchase price, loan fees, interest rate, real estate taxes, closing costs and other expenses. Take the time to look over both your Loan Estimate and Closing Disclosure in detail to make sure everything you see makes sense.

How do you count the 3 days from the closing disclosure? ›

This three business-day rule may include Saturdays, but it does not count Sundays or holidays. For instance, if you want to sign on a Friday and a holiday falls on a Thursday, you must receive your closing disclosure on Monday. Because of this, the three-day period is NOT measured by hours.

What is the 3 day closing disclosure rule? ›

The three-day period is measured by days, not hours. Thus, disclosures must be delivered three days before closing, and not 72 hours prior to closing. Note: If a federal holiday falls in the three-day period, add a day for disclosure delivery.

Is the closing disclosure the last step? ›

Your Closing Disclosure is the last thing that stands between you and finalizing your mortgage. It may feel like a mere formality to quickly sign before moving into your new home, but the information in the Closing Disclosure must be flawless.

How long after closing disclosure is clear to close? ›

There are a few more steps and actions to take before final approval, like an appraisal and inspection. How long does it take from clear to close to actual closing? It typically takes three days between the time you receive your closing disclosure and the day you close.

Is a closing disclosure a good thing? ›

Why are closing disclosures important? The closing disclosure presents the borrower's final opportunity to review the terms of their mortgage, ask questions and understand what they are committing to.

Can closing costs change after closing disclosure? ›

Yes, the Closing Disclosure form can change after signing. These changes can be due to adjustments in prorations, title fees, or other costs. If there are significant changes, a new disclosure will be required and the closing may be delayed.

Can cash to close change after closing disclosure? ›

Under TILA-RESPA, the borrower is protected from certain last minute changes by the lender. the APR decreases by more than 1/8th of 1 percent (0.125%) after the final closing disclosure is issued, the lender is allowed to increase the cash to close amount without violating the rules.

How long before closing is final approval? ›

Federal law requires a three-day minimum between loan approval and closing on your new mortgage. You could be conditionally approved for one to two weeks before closing. Can you close on a house in two weeks? If you're a cash buyer, you could close on a house within a few days.

What is the 3 day rule for closing disclosure? ›

Your lender is required to send you a Closing Disclosure that you must receive at least three business days before your closing. It's important that you carefully review the Closing Disclosure to make sure that the terms of your loan are what you are expecting.

What triggers a new closing disclosure? ›

A revised Closing Disclosure may be delivered at or before consummation reflecting any changed terms, unless: The disclosed APR becomes inaccurate. The Loan Product changes – prior Closing Disclosure becomes inaccurate. A Prepayment penalty is added.

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