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Loan Estimates and Closing Disclosures


The Spire
What is a Loan Estimate?
A Loan Estimate (LE) is a three-page document borrowers receive three business days after applying for a mortgage. It provides a summary of the loan terms, the costs associated with the mortgage, the loan size, interest rate and payments. It lays out whether there are any balloon payments, prepayment penalties or more. The document also includes a schedule of your payments and the estimated taxes and insurance payments. Closing costs are outlined in the Loan Estimate as well.
What is a Closing Disclosure?
A Closing Disclosure (CD) is a five-page document that outlines the final terms and expenses of a mortgage, including the home loan amount, interest rate, estimated monthly mortgage payments and closing costs. Mortgage lenders are required to provide home buyers with their Closing Disclosure at least 3 business days before their loan closes. The Closing Disclosure is one of the most important pieces of paperwork received during the mortgage process, so check it over carefully. In August 2015, under the direction of the Consumer Financial Protection Bureau (CFPB), the Closing Disclosure Form replaced the HUD-1 Settlement and Truth in Lending Disclosure Statement.
What is the Closing Disclosure Three-Day Rule?
Lenders are required by law to provide the standardized Closing Disclosure at least three business days before closing. This is what is known as the Closing Disclosure three-day rule. Federal law had previously mandated that the HUD-1 settlement statement be distributed to homebuyers on the day their loan was closing, which didn’t give much time to review the figures or ask for clarifications regarding TILA-RESPA Integrated Disclosure guidelines which went into effect on October 3, 2015. There were two problems with the previous documents (HUD-1 and Truth in Lending) as they were confusing, and they were only provided at closing – which offered home buyers very little opportunity to review and make sense of them. The Closing Disclosure’s three-day rule now gives borrowers plenty of time to go over the final terms of their loan before they sign their closing disclosure.

Due to the Three-day rule, the sequence of events leading up to borrowers receiving a Closing Disclosure should be relatively predictable. Lenders are generally careful to avoid issuing a Closing Disclosure before they are certain about what the closing costs and fees will be, they don’t want to have to change the agreement and wait another three business days. This means that loan approval, home appraisal, insurance and the calculation of all third-party fees will be completed before the Closing Disclosure is issued. The timeline will therefore look like this:

• All costs are calculated
• The Closing Disclosure form is issued
• The three-day rule goes into effect
• Borrowers sign the form

Why understanding your Closing Disclosure matters

If you’re purchasing a new home or refinancing your current loan, it’s imperative that you understand all the terms of your loan before you sign on the dotted line. The reason for this is that once you sign, you’re committing to the conditions presented. That means it’s crucial that you carefully read the Closing Disclosure you receive. As one of the final forms you receive before you close your loan, the Closing Disclosure allows you to compare your loan terms and costs to the terms listed in the Loan Estimate form you were given at the beginning of the process. Like all mortgage forms, the Closing Disclosure can be overwhelming to review,
especially if you’re not sure what to look out for. Instead of glossing over what you don’t understand, take the time to review everything the form covers. Your Loan Officer or your Real Estate Agent can help review the Closing Disclosure if needed.

Discrepancies between your Loan Estimate and Closing Disclosure

The Closing Disclosure includes all the same information as the Loan Estimate; however, you
can’t make any changes after you sign your CD. Therefore, it’s important to compare your Closing Disclosure with your initial Loan Estimate to identify any discrepancies. If you notice any differences, including an increase in the mortgage interest rate or borrowing costs, you need to talk to your lender before you sign.

Additionally, if you find a discrepancy between the Loan Estimate and the Closing Disclosure
that you don’t understand, the first step is to contact your mortgage professional or real estate agent immediately to verify if there are errors. These mistakes can be as minor as misspelled names or as serious as a change in the interest rate. Alerting your lender to the errors may delay closing, but it’s vital to get any discrepancies cleared up before signing. If changes need to be made, you have 3 additional business days prior to closing to review the revised Closing Disclosure. Once they’ve been fixed, compare the Loan Estimate and Closing Disclosure again to ensure that they match up.

A Lending Hand for Financing Home Mortgages

Spire Financial (A Division of V.I.P. Mortgage, Inc.) brings lending expertise to you. All of our loan officers offer personalized communication for every client, guiding them through the process. We can show you ways to maximize your finances and unlock future opportunities. Spire Financial keeps you in control of refinancing, debt consolidation, and home equity. Together, we can achieve your financial goals.