Reviewing a closing disclosure

What is a closing disclosure?

A closing disclosure is a summary of your loan terms and details. It’s the last thing you sign when you’ve been approved for your loan, underwriting is complete, and you’re set to close. It’s clear, concise, and fairly well organized. It’s a nice display of all the nuance loan information you’ll want to know.

Basically it’s the governments way of ensuring that the lender isn’t trying to skate something shady by you, and making sure if you default after you sign it, you knew good and well what you were agreeing to. 

Some states, or maybe it’s a federal law under Dodd-Frank require you to wait 3 days to close after signing the CD. 

If you’re new to home purchases or lending, this is probably new information to you. If you’ve done a few deals if you seen this and even then it might be good information to know. 

My whole career has been in lending and I barely knew how to read this thing until I got quite a bit of experience. I also know I’ve not seen a breakdown of one before so I love to provide unique info.

LET’S TAKE A LOOK!

This is my personal, actual, closing disclosure from one of my last deals. I’ve only removed the information that would make it incredibly easy for you to hunt me down and kill me. It’s not that I’m opposed to that happening, I would be flattered, but I’m definitely going to make you earn it!

Let’s start from top to bottom.

It’s not so complicated, it’s just good information to SEE before you get to it so you know what to expect. 

Loan amount  – This is the loan amount….duh

Interest Rate – This is your interest rate….DUH

Monthly P&I – This is your debt service before escrow. What people generally call their ‘mortgage’ is this figure PLUS taxes and insurance. 

Prepayment Penalty – It’s unlikely you will ever have this penalty on residential mortgages but it does exist. Banks will charge you a prepayment penalty to make up for the interest income they lose by you paying off or refinancing your loan early. 

Balloon Payment – This is commonly used on ARM’s (Adjustable Rate Mortgages) but you won’t find it on fixed rate loans

Estimated Total Monthly Payment – This will be referred to as PITI, principle, interest, taxes, insurance. You will provide the lender with an invoice for insurance and taxes will come from the county. No estimate about it! 

Estimated Taxes, Insurance, & Assessments – if you have an HOA or other such ancillary costs built into your loan, they will go here. 

Closing Costs – This is what it takes to get the loan done. This is important because many people underestimate the transaction costs of doing BRRRR.  The details will be transcribed on the next page.

Cash to Close – See the little checkbox next to the number that say “to borrower”? That means Alex is getting paid and let me tell you 60K buys a LOT of hot Cheetos! 

Origination Charges – The first fee are points the lender charges to do the deal. This number goes up as your loan amount goes down (bank gotta make money). Commitment fee is what I pay the broker to put the deal together and find the right bank. Origination fee here is hard cost the lender charges, in this instance I received a credit….maybe that’s because I send my broker new business weekly…..maybe it’s because I’m handsome….

Appraisal Fee – I don’t get to choose the appraiser and the costs keep going up. Patrick (my lender) can always count on me to complain about this expense.

Credit Report – Yep, you have to pay for them to run your credit

Flood Certification – No flood zone, no worries. 

Title Fees – Your title company gotta make money too

Recording Fees – Cost for your municipality to record the deed of trust/mortgage (differs by state)

Homeowners Insurance – You can’t get the loan without homeowners insurance and you’ll almost always want to build that expense into your escrow payments.  Since I paid mine already it shows up on the right side track. 

Mortgage Insurance Premium (PMI ) – The scam of all scams. PMI is insurance you pay for to cover the bank in case you default. This is standard on FHA loans (and others with less than 20% equity). While I would love to rant all day about how ugly this situation is in the effort of fairness lets just stop to realize that means when you put less than 20% down the banks are so worried about you they make you buy insurance for the lender. Maybe don’t over-leverage your property. #cashisking. You’ll notice there is no PMI here because it’s a 25% equity loan.

Prepaid Interest – This is simply prorated interest between the time the loan is closed and your first payment.

Property Taxes – Another prorated expense. This just depends on when the property taxes are due, what the seller has already paid for the year. Taxes aren’t negotiable, whatever this says, you’re paying. 

Do you have a lender you can really discuss this with?

A good lender will walk you through this stuff line by line if you ask. This doesn’t mean it’s good business to harass them about every detail, you should do research for yourself as much as possible but you want someone who will educate you and help you.

Anticipate costs, and fight over everything.

Now that you’ve read my post you have a reference for what things might cost. You should expect to find variance by property, lender, and location, but now you’re not in the dark. So if something seems REALLY off, you should feel empowered to ask why. 

The closing disclosure is my favorite time to argue over costs. My lender treats me great, gives me a good deal, and I trust him to take care of me on costs, and yet with all that said it’s in my nature to make a fuss over things (everything actually),  especially my money. So when you’re reviewing your CD remember to negotiate on items you think you should be getting a better deal on.

Education lowers risk

I hope this has been useful and unique content for you. If you’ve never done a loan before, having read this isn’t going to make a profound different experience, but risk is in the unknown, so the more you know going in the less fear you will experience and the more of the process you know to expect.

Finding a closing disclosure template online isn’t too hard, so I apologize for not providing strikingly original content, but this particular one is REAL and it’s MINE so my intent was simply to help those who follow my content and provide high levels of transparency of my business as I always do.