Closing Disclosure (CD): Definition, Purpose, and What It Includes

A Closing Disclosure (CD) is a five-page document provided to homebuyers by their lender before closing on a mortgage. It outlines the final loan terms, monthly payments, closing costs, and other essential details of the mortgage transaction. The Consumer Financial Protection Bureau (CFPB) requires lenders to issue the CD at least three business days before closing, giving borrowers time to review the details and ensure they match the original loan estimate.

This document is a critical part of the home-buying process, ensuring transparency and preventing surprises at the closing table. Buyers should carefully review their interest rate, loan terms, and closing fees to confirm they align with what was initially disclosed.

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What Does a Closing Disclosure Include?

The Closing Disclosure is broken down into several key sections, each detailing different aspects of the mortgage and transaction costs:

1. Loan Terms

This section outlines the final terms of the loan, including:

• Loan amount

• Interest rate

• Monthly principal and interest payments

• Prepayment penalties (if any)

• Balloon payments (if applicable)

  
  

2. Projected Monthly Payments

This section provides a breakdown of total monthly mortgage costs, including:

• Principal and interest

• Property taxes

• Homeowner’s insurance

• Mortgage insurance (if required)

  
  

3. Closing Costs

The CD lists all fees associated with the transaction, such as:

• Loan origination fees

• Appraisal and credit report fees

• Title insurance

• Recording fees

• Prepaid property taxes and insurance

  
  

4. Cash to Close

This section details the exact amount the buyer needs to bring to closing, accounting for down payment, closing costs, lender credits, and any prepaid expenses.

5. Loan Disclosures

This part provides additional information about escrow accounts, late payment penalties, and whether the loan can be transferred to another lender.

6. Comparison to Loan Estimate

The CD includes a section comparing the final loan terms to the initial Loan Estimate (LE) provided at the start of the mortgage process. If any costs have increased, the lender must explain the changes.

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Why Is the Closing Disclosure Important?

The Closing Disclosure ensures that borrowers fully understand their mortgage terms and financial obligations before signing the final paperwork. The three-day review period allows time to:

• Verify that all loan details match the original Loan Estimate.

• Identify any unexpected fees or changes in loan terms.

• Ask the lender about any discrepancies before closing.

  
  

If significant changes occur, such as a higher interest rate or major fee adjustments, a new three-day review period may be required before closing.

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What to Do When You Receive a Closing Disclosure

1. Review All Loan Terms Carefully

Confirm that your loan amount, interest rate, and monthly payment match the Loan Estimate and what you agreed to with your lender.

2. Check the Closing Costs and Cash to Close

Compare the final closing costs with your Loan Estimate to ensure there are no unexpected increases.

3. Look for Errors

Mistakes on your CD can lead to financial issues down the line. Check for misspelled names, incorrect loan amounts, and inaccurate fees. If you spot an error, contact your lender immediately.

4. Ask Questions

If any numbers don’t match what you were expecting, ask your lender for a clear explanation before proceeding to closing.

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Final Thoughts

The Closing Disclosure (CD) is one of the most important documents in the home-buying process, ensuring that borrowers fully understand their loan terms, costs, and financial obligations before closing. Reviewing it carefully and addressing any discrepancies can prevent costly mistakes and ensure a smooth closing experience. Buyers should take full advantage of the three-day review period to confirm that everything aligns with their expectations before signing the final documents.