Reading a mortgage closing disclosure

The Closing Disclosure usually arrives a few days before closing. Use those days to sort out problems. Most of the form lines up with your most recent Loan Estimate. Compare the two and ask the lender about anything that changed. If you haven't read an estimate before, start with Reading a mortgage loan estimate.

Page 1: the loan terms

• Your name. Ask the lender to correct any wrong contact details. Even a minor misspelling can cause big problems later.
• Loan term, purpose, product and type. These should match what you were expecting. If they don't, call the lender right away and ask why they changed.
• Loan amount. If it went up, ask why. Closing costs rolled into the loan lower what you pay at closing but add to the overall cost, because you pay interest on them.
• Interest rate. If you locked the rate and it changed, ask the lender why.
• Prepayment penalty and balloon payment. Both features are risky. A prepayment penalty lets the lender charge a fee if you pay the mortgage off early. A balloon payment makes the final payment a lump sum much larger than the monthly ones, often tens of thousands of dollars.
• Estimated total monthly payment. Check it against the Loan Estimate, and make sure it fits your budget.
• Taxes, insurance and assessments not in escrow. Anything listed here is a cost to budget for separately.
• Closing costs and cash to close. Both should match the Loan Estimate. If there are significant changes, ask the lender to explain them.

Page 2: the closing costs

Closing costs, or settlement costs, are the upfront costs of getting the loan and transferring ownership of the property.

• Services you did not shop for. Third-party services the lender requires. Compare them with the two shopping sections on page 2 of the Loan Estimate. No new services should appear, and the costs should be similar, though they can differ somewhat.
• Services you did shop for. These should match the prices you agreed to. Ask the lender about any service you don't recognize or any company you didn't choose.
• Origination charges and points. The lender's upfront charges for making the loan, and any fee paid for a lower interest rate.
• Taxes and other government fees. The costs of transferring the property and registering the mortgage with the county records office.
• Prepaids. Interest for the rest of the month you close in, and often the first year's homeowners insurance premium.
• Initial escrow payment at closing. The starting balance in your escrow account.
• Total closing costs. The upfront costs of the loan and the sale, not counting the down payment. It isn't the amount you bring to closing.
• Lender credits. A rebate from the lender toward your closing costs, usually in exchange for a higher interest rate.

Page 3: cash to close

• Seller credit. This should match what the seller agreed to contribute to your closing costs. If the seller agreed to pay specific costs instead, those may appear as seller-paid lines on page 2.
• Due from borrower at closing. The total charged to you at closing, including the house price and closing costs, before credits.
• Adjustments. Costs the seller prepaid that you now reimburse, and taxes or fees the seller owed that you'll pay later, which the seller credits you for now.
• Cash to close. The amount you actually pay at closing, usually by cashier's check or wire transfer. Ask the closing agent how to make the payment. Depending on where you live, this person may be called a settlement agent or an escrow agent.

Pages 4 and 5: loan disclosures and the totals

• Late payment. What a late payment will cost.
• Partial payments. Whether the lender will accept a partial monthly payment. A lender that does may hold it in a separate account instead of applying it to the loan.
• Escrow account. Whether you have one, what it includes and the estimated costs. Homeowners association dues are often left out. Some lenders charge an escrow waiver fee if you don't have one.
• Assumption. Whether a buyer could take over the loan on the same terms if you sell. Most loans don't allow it.
• Demand feature. Whether the lender can demand immediate payment of the whole loan at any time.
• Negative amortization. Whether the balance can grow even when you pay on time and in full. Most loans don't have it.
• Security interest. It lets the lender foreclose on the home if you don't repay the loan.
• Total of payments and finance charge. What you'll pay over the life of the loan, and the interest and loan fees within that, if you make all payments as scheduled.
• APR and Total Interest Percentage. Two measures of the loan's cost over its life.
• Appraisal. Ask the lender for a copy of the appraisal if you don't have one.

Read the note and the security instrument, also called the mortgage or deed of trust, carefully as well.

An annotated example

What to do next

Set the Closing Disclosure beside your last Loan Estimate and compare the loan terms, monthly payment, closing costs and cash to close. Ask the closing agent how to pay the cash to close, and keep the signed form with the home's records.