Imagine that you’re nearing the closing of your home loan. And what a process it has been. Pre-approvals, house hunting, income verification, inspections, appraisals and so much more. For some, the amount of paperwork feels daunting. But if you’ve prepared a bit ahead of time, you’ll keep a cooler head while your eyes stay on the prize of the American Dream.
Closing a home loan can be a whirlwind activity, with a frenzy of dozens of documents to be signed and verified, and instructions of each one coming in from lenders and lawyers with the verbal rapidity of an auctioneer.
Each document is significant, based on its own role in the loan package. A prime example is the Closing Disclosure. There are numerous documents spread between real estate agents, lenders and appraisers but the Closing Disclosure is one of the big dogs you’ll encounter when it comes to closing day.
This is not to be confused with the Loan Estimate, a three-page document covering general information about the loan and property. While not part of closing documentation, the Loan Estimate breaks down you closing costs into a detailed explanation of origination charges (to cover lender expenses), third-party charges like taxes and homeowner’s insurance, and the estimated amount of cash needed at closing.
So, what exactly is the Closing Disclosure? It technically covers the same points as the Loan Estimate, but includes additional information regarding the escrow component of you loan. To understand the Closing Disclosure is to know what escrow is. Escrow is money that your mortgage lender puts into a separate account that pays your future property taxes and insurance costs. It’s common to have escrow with a mortgage, but isn’t always necessarily required.
The most important thing to be aware of is to receive and sign it three days before closing, which is required as part of the new Dodd-Frank guidelines. If it is not signed and returned to the lender within that time frame, the closing will be delayed.
And this is quite probably the most significant part of the Closing Disclosure. It’s one thing to understand the terms outlined in it-which should be pretty familiar because you’ve likely discussed this already with your real estate agent-but it’s just as important to understand the details as it is to promptly sign it. The last thing anyone wants or needs is a surprise delay arising at the closing.
Understanding the terms of the Closing Disclosure will help lessen your concerns before going to the closing.
Hopefully, a seamless home loan closing is a reality when you understand the Closing Disclosure (and what funds will be necessary to bring to the closing).
For more information, contact our office today!