Closing disclosure: What it is and what to know

As you move through the homebuying process, there are various documents you’ll be presented with. One of the last pieces of information to review is the closing disclosure.

But what exactly is a closing disclosure, what’s in it and why is it important? Use this guide to learn more.

Key takeaways

• The closing disclosure is the last form you’ll receive before closing on your home.
• Lenders are legally required to send this five-page document at least three business days before closing.
• The closing disclosure includes important information about your mortgage, such as estimated monthly payments, loan terms and closing costs.
• It’s important to thoroughly review the closing disclosure before signing anything at closing.

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What is a closing disclosure?

A closing disclosure is a legally required statement that includes the final details of your loan. This five-page form typically includes:

• Loan terms
• Monthly payments
• Loan costs like fees or mortgage points
• Closing costs
• Information about the escrow account

Closing disclosure three-day rule

By law, lenders are required to send the closing disclosure at least three business days before the closing date. This should give you time to thoroughly read through the final loan terms before signing anything at closing.

You can also use this time to compare the terms and costs in the closing disclosure with the original loan estimate you received when you got the mortgage offer.

Why is a closing disclosure important?

A closing disclosure is important because it contains essential information about the details of your loan, including terms, closing costs and more. So whether you’re purchasing a new home or refinancing your current mortgage, it’s important to carefully read the closing disclosure to make sure you know exactly what you’re agreeing to when you sign.

Reviewing it ahead of time can also give you time to correct any mistakes. So if you notice anything that doesn’t seem right as you read it over, now’s the time to talk it over with your lender.

How to read a closing disclosure

There are different components to a closing disclosure, and it can help to understand each one when you’re reading through the form.

Closing disclosure example

You can refer to this sample closing disclosure from the Consumer Financial Protection Bureau (CFPB) to see what the form might look like and read more about features and definitions. But here are a few highlights:

• Loan terms: Items related directly to the terms of your mortgage, including the applicable loan amount, interest rate, monthly payment, prepayment penalty and balloon payment.
• Projected payments: A breakdown of mortgage costs showing how payments may change over the years. It may include a payment calculation, estimated monthly payment and estimated taxes. If insurance and homeowner association fees aren’t included in escrow, they might also be included.
• Costs at closing: The expected closing costs required to take ownership of the property. Sometimes called “settlement costs,” they might also include lender credits.
• Loan costs: This section is broken down into two parts. First, services the borrower didn’t shop for, such as appraisal or credit report fees. Second, services the borrower did shop for, such as survey or pet inspection fees.
• Other costs: Additional charges like transfer taxes and recording fees, plus any insurance premiums or escrow payment due at closing.
• Calculating cash to close: A breakdown of the total amount needed to bring to closing. Previous deposits paid and any adjustments or credits might be accounted for here. This section will also include any seller concessions or credits, which are closing costs the seller agreed to pay.
• Loan disclosures: Information about late or partial payments, negative amortization and escrow account details. This section will also tell you whether the loan is assumable, meaning it could be transferred to someone else with little to no changes in terms. It also outlines whether your loan has a demand feature, which means the lender could require full payment of the entire loan—including principal and interest—at any time.

How to review a closing disclosure

Before closing day, you can check over your closing disclosure form to verify that all information is correct. You can also compare it with your loan estimate to check for any discrepancies.

Here’s what the CFPB recommends checking before signing anything at closing:

• Verify the spelling of your name and property address in the Transaction Information section.
• Make sure the details in the Loan Information section, such as loan term, purpose, product and loan type, are the same as what’s stated in your most recent loan estimate.
• Ensure that the loan amount and interest rate are the same in the Loan Terms section.
• Check whether your loan has a prepayment penalty in the Loan Terms section. If it says yes, this means the lender can charge you a fee for paying off the mortgage early.
• See if the Loan Terms section shows whether the loan has a balloon payment, which is when the final mortgage payment is a lot more than the regular monthly payment amount.
• In the Projected Payments section, compare your most recent loan estimate with the estimated total monthly payments to make sure they match.
• Look over the estimated taxes, insurance and assessments box under Projected Payments to see whether there are any items like property taxes, homeowners insurance or homeowners association dues that aren’t in escrow. If there are, you might want to include these items in your budget, as they’re paid separately from your mortgage.
• Refer to the Costs at Closing section to verify that the closing costs and cash required to close are the same as your most recent loan estimate.

If you see issues, errors or discrepancies with anything, it may be a good idea to reach out to your lender to discuss more and see what your options are.

Closing disclosure FAQ

Here’s more information about closing disclosures:

What is the purpose of a closing disclosure?

A closing disclosure is sent out at least three business days ahead of closing so that homebuyers have time to look through the final details of their mortgage loan. During this time, borrowers can compare loan terms with their most recent loan estimate. If anything needs to be changed or corrected, borrowers have time to work with their lenders to figure out any issues and resolve them.

What is the next step after closing disclosure?

After you receive the closing disclosure, you can set up your final walkthrough appointment. While not required, this step in the homebuying process gives you the opportunity to look through the property before closing.

According to Quicken Loans, if you find something isn’t in the condition you expected and agreed on with the seller, you can delay the closing, renegotiate the contract, arrange an escrow holdback or even back out of the deal.

Can a mortgage be denied after the closing disclosure was issued?

Receiving a closing disclosure typically means you’re clear to close. This happens when things like underwriting and document verification have been completed.

Once you’re clear to close and you’ve signed the closing disclosure, it’s unlikely the mortgage will be denied. But major changes to your financial situation, like losing a job or taking out another line of credit, could cause the application to be declined.

Closing disclosures in a nutshell

Receiving a closing disclosure puts you one step closer to taking ownership of your new home. But it doesn’t mean the process is over yet. Once you receive a closing disclosure, it can be helpful to review the details with a fine-tooth comb to make sure there aren’t any surprises or inaccuracies.

And these important questions to ask when buying a house can also help you further prepare yourself as you go through the homebuying process.