As a buyer, carefully examining your closing disclosure is a critical step in the real estate process. Here are nine things for you to watch for as you go over the document.
A lot of people ask me, “What is a closing disclosure?”
Before I get into what closing disclosures are, what people should know about them, and how to protect yourself, I’d like to relay a shocking statistic.
I recently read an article from the National Association of Realtors which stated that 50% of all agents who had been polled in a recent survey had found an error in a closing disclosure.
With that in mind, let’s answer the question I mentioned earlier: What is a closing disclosure?
A closing disclosure is a form outlining the terms and costs of a mortgage. For buyers, this is one of the most important pieces of paperwork before closing on a home. Lenders, by law, must provide buyers with their closing disclosure at least three business days prior to closing.
“When you receive your closing disclosure, it’s important to look for a few things as you review its contents.”
When you receive this document, it’s important to look for a few things as you review its contents. First of all, don’t always trust the agent to know everything. There are certain numbers you may have gone over with your lender or title company that they aren’t aware of.
Here are a few of the most important things to watch out for as you look at your closing disclosure:
1. Make sure your name is spelled correctly. I know this sounds silly, but it’s critically important. Even minor misspellings can create big issues later.
2. Verify that the term of your loan is correct. Whether you have a 15-year loan, a 30-year loan, or whatever else, make sure this information is recorded correctly.
3. Verify that your loan type is listed correctly. All the information on your closing disclosure should match up with what you’ve worked out with your lender.
4. Make sure your interest rate is correct. Your interest rate should be locked in at this point, so make sure the figure on the document is accurate
5. Examine your cash-to-close amount. The cash-to-close amount refers to how much money you’ll need to actually close the deal. Like all the other information in the document, make sure that this is correctly recorded.
6. Verify that the closing costs are correct. When you receive your closing disclosure, carefully look over these fees, which will be paid to third parties in order to facilitate the sale. If there is a significant discrepancy between the figure on the disclosure and what you saw on your loan estimate, let your lender and title company know. In general, buyers can expect the typical closing cost to be 3% to 4% of the sale price.
7. Verify your loan amount. If your loan amount has gone up, this is definitely something to look into. There are a few reasons why this may legitimately be the case, but it’s always good to review unexpected changes in the disclosure with your lender.
8. Check your estimated monthly payment. This figure may change, so be aware of what you can expect after closing.
9. Look into your estimated taxes, insurance, and other miscellaneous expenses. Each of these things should be taken carefully into account as you proceed with your home sale.
If you’re a first-time homebuyer or this is your first time purchasing a home after August of 2015, I would be happy to send you a sample closing disclosure for you to review. This may help you understand what to expect.
As always, if you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.