Reading and Understanding the Closing Disclosure

What is the Closing Disclosure?

The Closing Disclosure, commonly known as the CD, is a document that provides a detailed breakdown of all the fees and charges associated with a real estate transaction. It's essentially a "Cliff's Notes" version of the entire sale, condensing all the information into one straightforward document.

The CD actually comes in three separate forms: the Buyer's CD, the Seller's CD, and the Combined CD.

• The Buyer's CD takes the information from the loan package and condenses it into one document.
• The Seller's CD includes only the financial information that's pertinent to the seller: their fees and proceeds.
• The Combined CD, which is distributed to the real estate agents, combines all of the buyer’s numbers and the seller’s numbers in one document without personal information.

The CD is required by law due to rules set forth by the Consumer Financial Protection Bureau (CFPB) under the TILA-RESPA Integrated Disclosure (TRID) rule. The CD must be disclosed to buyers three days before closing, regulating the closing date. The lender determines when the CD will be available, and this timeline is out of the title company’s hands.

The CD is straightforward and relatively easy to read. However, the combined CD that realtors receive looks different from the CD your buyers will receive. By educating yourself on the Buyer’s CD, you’re better able to help your clients read and understand the document. You’re also better positioned to respond to their questions and resolve issues prior to closing.

Parts of the Buyer's Closing Disclosure

The Buyer's Closing Disclosure is a five-page document. Each page contains crucial information about the real estate transaction. Here's a breakdown of what each page contains and what to check for:

Page One

The first page of the CD contains key transaction details, including the closing date, property address, purchase price, type of loan, and a breakdown of the loan information. The loan information includes the loan amount, interest rate, principal and interest, total monthly payment, and the amount of cash needed for closing.

What to check: Verify the accuracy of all of the details on this page. Names should be spelled correctly, and the address should match the property address exactly. The loan amount, interest rate, estimated monthly payments, and cash to close should match the loan estimate. If there are errors or surprises, now is the time to contact your lender.

Page Two

The second page breaks down the closing costs that are listed at the bottom of the first page. It provides a line-by-line description of loan costs and services such as appraisal fees and title insurance fees. This page also includes taxes, prepaids, and escrow payments.

What to check: Verify that loan costs match your loan estimate. While the actual prices may vary a little bit, you shouldn’t see any surprising items or services here. If there’s anything you don’t recognize, you can always ask your lender to explain what you see.

Page Three

The third page of the Closing Disclosure features credits and debits, including prorated items such as taxes and HOA dues. This page will also include any closing costs that are paid by the seller and earnest money that’s already been paid.

What to check: Make sure all of the debits and credits on this page are accurate. The seller credit for closing costs should match the agreed-upon amount from the contract. It’s also important to verify that the earnest money deposit has been applied accurately.

Page Four

The fourth page contains lender information and includes some key disclosures about the loan. On this page, you’ll find information about late payments, partial payments, and escrow accounts. None of this should be new information to the buyer.

What to check: This is a great place to reference some specific details about the loan and escrow account. You can see an exact breakdown of the current escrow payments, and it will have specific information about late fees.

Page Five

The fifth page of the CD contains loan calculations as well as important contact information. Buyers can see the total amount of the loan (including principal and interest), the finance charge, the amount financed, the annual percentage rate, and the total interest percentage. These all assume that your payments are made as scheduled.

What to check: There isn’t much to check on this page. The contact information for the lender, mortgage broker, real estate brokers, and settlement agent will all be on this page. This page is a helpful reference if buyers ever need to contact someone associated with the transaction.

Why You Should Read the CD

Reading the Closing Disclosure (CD) is not just a formality; it's a crucial step in the home-buying process. As an agent, you should always encourage your buyers to read their CD carefully. You can help them know what to expect on the CD and offer to go over it with them if they’d like. You should always be available to answer any questions they may have. Your buyers are understandably busy, but it’s important to emphasize that they should always make time to review the CD carefully before closing.

A key reason to read the CD is to verify information. Honest mistakes can happen, from spelling errors to invoices that didn’t get applied. It's essential to verify all loan details on the CD. Now is the time to adjust anything that doesn’t seem accurate. Changes can’t be made once the documents are signed at closing.

Reviewing the CD prior to closing is also key to ensuring a stress-free and smooth transaction. A real estate transaction involves a lot of numbers and details, and it's much easier to go over these prior to closing. If there are any confusing elements, you can contact the appropriate parties to get answers and clarification. While you can always ask questions at the closing table, it’s often less stressful to address these beforehand.

Addressing any issues before everyone gets to the closing table ensures that everyone is comfortable when they arrive. And it streamlines the closing itself: everyone is familiar with what they’re signing, and there aren’t any surprises. Any issues have already been corrected, so the closing is quick, straightforward, and easy.

Your Closing Disclosure Questions Answered

How is the CD different from the Loan Estimate?

The Loan Estimate is an initial document that provides an estimate of your loan terms and costs. While it should give the buyer a good idea of their final costs, there may be some minor changes before closing day. The Closing Disclosure, however, provides the final terms and actual costs of your loan.

What happens if you find errors in the Closing Disclosure?

If errors or discrepancies are found in the CD, the buyer should contact the lender immediately. Most changes won’t delay closing, even though the mortgage lender will have to provide an updated disclosure.

What is the role of the title company in producing the CD?

The title company collaborates with the lender to ensure accurate information on the CD, but the lender is ultimately responsible for issuing and distributing the disclosure.

How can agents help their clients with errors in the Closing Disclosure?

Agents can help clients understand the CD and identify potential errors. If errors are found, agents can facilitate and support communication between the client and the lender to correct these errors.

What are some common mistakes to avoid when reading the CD?

Common mistakes include not checking personal information, not comparing the CD with the Loan Estimate, and not understanding the breakdown of costs. Agents and clients should always ask questions if there's something that's confusing or seems incorrect.

Streamlining the Closing Process

The Closing Disclosure is more than just a document; it's a tool that streamlines the closing process. As a real estate agent, your role in guiding your clients through the CD is crucial. You are their advocate, their guide, and their support system. By understanding the CD, you can help your clients navigate their real estate transactions with confidence and ease.

At South Oak Title and Closing, we are committed to making the closing process as smooth and straightforward as possible. We are always happy to answer your questions or your client’s questions about the CD or any other aspect of the closing process. Contact us with your questions, or order a title and schedule a closing today.