How to Read a Closing Disclosure

Erica Sandberg, Kristen Hampshire
·8 min read

A closing disclosure is a form containing important details about your mortgage that you will review for accuracy before you close on your home. The closing disclosure needs your full attention if you want to avoid surprises at the closing table.

"Mistakes can cost people thousands of dollars," says Todd Huettner, president of Huettner Capital, a Denver-based real estate lender.

Your lender will provide the closing disclosure and allow you time to compare it with the loan estimate you received at the beginning of the homebuying process. "The numbers on a closing disclosure are not final, but they are very, very close," Huettner says.

The window of time for review also gives you a chance to ask questions before closing. "You'd rather have your 100 questions days in advance than the day of signing," Huettner says.

Here's more about how to read your closing disclosure and why this document matters.

[Read: Best Mortgage Lenders.]

What Is a Closing Disclosure?

The closing disclosure is a five-page statement of your loan terms, projected monthly payments, fees and closing costs. Lenders are required by law to provide buyers with a standardized closing disclosure form.

You will need to carefully review the terms and costs in your closing disclosure before you close on your home loan. Sign your closing documents only after checking the disclosure and comparing it with your loan estimate. Inspect for errors and make sure you know the reasons for discrepancies.

What Is the 3-Day Closing Disclosure Rule?

Your lender is required to give you the closing disclosure at least three days before closing. If you do not receive a disclosure, request one from your lender immediately, and do not proceed with closing until you have reviewed the document, according to the Consumer Financial Protection Bureau.

Your signature will confirm receipt of the disclosure, but it does not bind you to the loan. Signing the form also "starts the clock" to the closing table, Huettner says.

Three days should give you plenty of time to review the document. Of course, you don't have to read the disclosure, and you might be tempted to skip this step in rushed closing situations. But this scenario is not ideal.

When buyers don't review the closing disclosure, "The most common issue is the cash to close and the difference in what was cited initially versus what is on the final document," says Laurie Cooper, division president, Stewart Title, Jacksonville, Florida.

Do not wait until right before closing to review the disclosure and identify concerns because this takes time. If your loan estimate was prepared with accurate data, however, you should not find major discrepancies.

[Read: Best Mortgage Refinance Lenders.]

What Is in the Closing Disclosure?

Here's what you will find on each page of the closing disclosure and what you will need to review.

Page 1: At the top of the closing disclosure , you will see names and addresses of all parties, relevant dates, and home sale price. The length and type of loan will be clearly indicated.

Next is a breakdown of terms, payments and closing costs.

The Loan Terms section shows your loan amount, interest rate, and monthly principal and interest. It also indicates whether prepayment penalties and balloon payments apply.

Check that your interest rate is correct. If the rate is even a fraction of a point too high, you will end up paying thousands of dollars more in interest over the loan term.

Contact your lender immediately if you think you have found an error with the interest rate. The rate could be accurate, and the lender can explain why.

You will want to make sure that your name is spelled correctly and that the loan term, amount, purpose, product and type match your most recent loan estimate.

Next, the Projected Payments portion of the disclosure shows your estimated total monthly mortgage payment, plus estimated taxes, insurance costs and assessments, such as homeowners association dues. Check that your estimated payment matches the one on your most recent loan estimate, and make sure that taxes, insurance costs and other items are not missing from escrow.

Finally, Costs at Closing breaks down closing costs so you will know what you owe your lender at the closing table. Check that your closing costs and cash to close match your most recent loan estimate.

Page 2: This is a detailed explanation of loan costs, including origination charges and other services. You'll need to check that items in Services Borrower Did Not Shop For are similar to your loan estimate and that prices in Services Borrower Did Shop For match what you agreed to pay.

Page 3: This is where you'll see a breakdown of the amount of cash you will need at closing. The final figure reflects adjustments and other credits, plus outstanding costs.

Review each line item to ensure you've been credited for all transactions and that nothing has been added.

"Make sure your earnest money deposit is reflected," Huettner says. "This is also where the buyer will reimburse the seller for any items paid in advance, like HOA dues or a capital contribution to the HOA."

Check that your seller credit shows what you agreed upon with the seller.

You'll find how much money you need to bring to the closing table at the bottom of this page. The final cash to close figure should match the one on the first page of the disclosure.

Page 4: This section tells you what your late fee will be and whether your lender accepts partial payments.

Information about your loan's escrow account -- odds are you have one -- is also on this page. You'll see what is included, usually homeowners insurance and property taxes. If you decide against an escrow account, you may spot an opt-out fee from the lender.

Page 5: The last page shows loan calculations, such as the APR, the finance charge and the total amount of interest you will pay over the loan term as a percentage of your loan amount.

A brief explanation about foreclosure and refinancing follows. The disclosure then lists the lender and the settlement agent, as well as any mortgage and real estate brokers, along with their contact information.

How to Check Your Closing Disclosure

Here's what to know to take some of the stress out of reviewing your closing disclosure.

First, find out whether your lender or closing agent, such as a title company or attorney, will provide the disclosure and how. You could have to download the form from a website, or it could come by email or regular mail.

Find your most recent loan estimate to compare it with your closing disclosure.

Use your three days to review documents, ask questions, and make sure you fully understand the costs and terms of your loan.

One of the most important things to remember when reviewing your closing disclosure is to "compare apples to apples," Huettner says.

When comparing the closing disclosure and loan estimate, many numbers should be the same, including down payment, earnest money and lender origination fee.

Some closing costs may change by small amounts compared with your loan estimate. By law, some fees cannot increase unless you have asked for a loan modification or your financial information has changed, and other fees are limited in how much they can fluctuate, according to the CFPB.

Check out the agency's interactive sample disclosure for guidance on reviewing your document before closing. The agency says you can avoid closing pitfalls by:

-- Double-checking your loan amount, type, term, interest rate, monthly payment and key details, such as whether you are paying points or receiving closing cost credits.

-- Comparing the APR on the closing disclosure with the APR on your loan estimate. This can show whether your costs have increased.

-- Asking a lot of questions. Do not sign any documents at closing until you have confirmed that what you are signing is correct.

-- Hiring a real estate attorney to review your documents. However, this is optional.

[Read: Best Adjustable-Rate Mortgage Lenders.]

What to Do if You Find an Error on the Closing Disclosure

Notify your lender or title company immediately to correct errors on the closing disclosure. Errors in documents can cause closing delays.

"Don't be afraid to stop and ask even more questions about the disclosure," Huettner says. "Take a break. Step out of the room; make a few phone calls to people you trust. Collect yourself and look at the paperwork again in private. It's not out of the ordinary for buyers to remember different numbers."

Ask about the consequences of putting the transaction on hold. You might have to pay a penalty for every day the closing is late, Huettner says.

But the risks of a delay could be even bigger. "It's possible that you will lose your earnest money," he says.

Even worse, you could lose the home. "They may have another buyer and are willing to go in another direction for the sale," Huettner says.