Understanding real estate closing disclosures (CDs)

A mortgage disclosure is one of the many multitudes of documents you sign when purchasing a home. But what, exactly, is a mortgage disclosure? Nearly every home purchase involves this critical document, which outlines stipulations between a lender and a buyer. It might seem fairly simple compared to other loan paperwork, but that doesn’t make it any less important! In fact, it’s quite a critical part of the closing and pre-closing process.  

What is a real estate closing disclosure?

A closing disclosure — or “CD” in real estate language — is a document intended to protect the homebuyer taking out a mortgage. As part of the requirements established by the Consumer Financial Protection Bureau (CFPB) under the Real Estate Settlement Procedures Act (RESPA), a CD gives lenders a clear understanding of the terms and costs associated with their mortgage loan.

In short, a real estate closing disclosure is a form that summarizes the details of your mortgage loan. It’s provided to you by your bank or mortgage lender at least three business days before closing on your home. The purpose of this document is to help you understand the costs associated with buying your home and ensure that there are no surprises on the day of closing.

The typical real estate closing disclosure includes the following information:

3 things included in a closing disclosure

• Loan terms and borrower details: The bulk of a typical mortgage disclosure focuses on loan terms. It outlines key information like the loan amount, interest rate, loan term (usually 15 or 30 years), and whether the interest rate is fixed or adjustable. It also always contains details about the borrower, including name, contact information, and information about any co-borrowers.
• Projected payments: Homebuyers need a clear understanding of their monthly obligations for effective budgeting, and a mortgage disclosure provides an estimate of the monthly payments they’ll make throughout the loan term. The document breaks down the payment amount — including principal and interest — as well as any escrow payments for taxes and insurance.  (It’s a more detailed version of what you’ll see in a mortgage calculator.)
• Closing costs: Buying a home usually involves various fees and costs, known collectively as closing costs. You can refer to your mortgage disclosure for an itemized breakdown of these costs, including appraisal fees, title insurance, recording fees, and more.

‍What happens after signing a closing disclosure?

Congratulations — you’ve found your dream home and signed your mortgage disclosure! But what happens next? Here’s what to expect after you sign a mortgage 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.
• Closing: The closing appointment is scheduled, usually a few days after signing the disclosure. At the closing, you, the seller, your real estate agents, and possibly representatives from the title company or the lender will meet to finalize the transaction. During the closing, you will sign various legal documents, including the mortgage note, deed of trust, and other paperwork required to transfer ownership.
• Payment of closing costs: These include fees for the loan origination, title search, title insurance, appraisal, and other services. Payment can be made by wire transfer or certified check.
• Transfer of ownership: Once all the necessary documents are signed, the title company or closing attorney will record the deed and mortgage with the appropriate local government office. This process legally transfers ownership of the property to you. Congratulations, you’re a homeowner!
• Disbursement of funds: After the closing, the funds are disbursed to the appropriate parties. The seller receives the net proceeds from the sale, and any outstanding debts or liens on the property are paid off. The lender also receives the loan amount.
• Possession and move-in: Following the closing, you typically receive the keys to your new home and can take possession of the property. This allows you to start moving in and making the house your own.

Related: When is your first mortgage payment due?

Can things go wrong after signing a closing disclosure?

Once you sign a closing disclosure, you may feel a sense of relief. All that’s left to do is close and move, right? In most cases, the transaction is as good as done; however, there’s always a possibility for something to go wrong. 

In some situations, issues may arise between signing the disclosure and closing on the loan. Some of the common problems buyers face after signing a closing disclosure include:

Loan denial

‍Just because you signed the disclosure doesn't guarantee that you’ll get approved. Your lender will likely continue to verify your employment, income, and credit as part of their due diligence process. If they find any inconsistencies or negative changes, they may reject your application, leaving you without financing to purchase your dream home.‍

Interest rate changes

‍ Mortgages rates aren’t controlled by your lender, and they can fluctuate due to various factors. If rates go up before closing, your lender may need to adjust your loan's interest rate, resulting in higher monthly payments. It’s wise to avoid these situations by setting a lock-in period for your interest rate (usually 30 to 60 days) to guarantee the rate outlined in your closing disclosure.

Appraisal value changes

‍Sometimes, changes in the property's appraisal value could lead to problems after signing a closing disclosure. For instance, if the appraisal comes in lower than the purchase price, your lender may refuse to finance the full amount you need for the home. In other cases, the appraiser may find significant problems with the property's physical conditions, making it ineligible for financing. Complete the appraisal as early as possible to allow for any adjustments.

Signing a closing disclosure is a big step toward financing your home, but it’s not the final step. With appropriate preparation, thoughtful planning, and clear communication with your lender, you can increase your chances of a smooth and successful homebuying process. In any case, this penultimate step is designed to provide you with all the information you need to feel comfortable and confident as you approach the closing date. 

FAQs

Here are more answers to all your questions about closing disclosures in real estate.

Does a closing disclosure mean final approval?

No, a closing disclosure is not the same as final approval. It is a document that outlines the terms of your mortgage loan, including the interest rate, fees, and other charges. You will still need to go through the underwriting process and receive final approval before closing on your loan.

What is the 3 day rule for closing disclosure?

The 3 day rule is a requirement under the Truth in Lending Act (TILA) that requires lenders to provide borrowers with a closing disclosure at least 3 business days before closing on a mortgage loan. This gives borrowers time to review the document and ask any questions before committing to the loan.

Is the closing disclosure the last step?

No, the closing disclosure is not the last step in the mortgage process. After receiving the closing disclosure, you will still need to sign the document and complete the closing process, which typically includes signing all the necessary paperwork and paying closing costs.

‍Is a closing disclosure good or bad?

A closing disclosure is neither good nor bad, but rather a neutral document that outlines the terms of your mortgage loan. It is important to review the document carefully to ensure that it reflects the terms you agreed to and that there are no errors or unexpected charges.

What are the benefits of a closing disclosure?

The main benefit of a closing disclosure is that it provides transparency and clarity around the terms of your mortgage loan. By reviewing the document, you can ensure that you are getting the loan you agreed to, with no unexpected fees or charges. Additionally, the 3 day rule gives you time to ask any questions and address any concerns before committing to the loan.