Understanding the Closing Disclosure: What It Is and What It Isn't
When you're buying a home, you'll encounter numerous documents throughout the mortgage process. One of the most important—and often most confusing—is the Closing Disclosure (CD). This five-page document arrives at a critical moment in your home purchase, and understanding exactly what it is and what it isn't can prevent last-minute surprises and help you close with confidence.
What Is a Closing Disclosure?
The Closing Disclosure is a standardized, five-page form that provides a detailed accounting of your mortgage loan terms and all costs associated with your home purchase. Created as part of the TILA-RESPA Integrated Disclosure (TRID) rule in 2015, the CD replaced the previous HUD-1 Settlement Statement and final Truth-in-Lending disclosure, consolidating information into a single, clearer document.
When You Receive It
By federal law, lenders must provide your Closing Disclosure at least three business days before your scheduled closing date. This mandatory waiting period gives you time to review the numbers, compare them to your Loan Estimate, and ask questions before you're sitting at the closing table with a pen in hand.
The three-day rule is strict. If any significant changes occur that require a revised CD, the three-day clock resets, potentially delaying your closing. Saturdays count as business days for this purpose, but Sundays and federal holidays do not.
What's Inside: The Five Pages Explained
Page 1: Loan Terms and Projected Payments
The first page includes your basic loan information: loan amount, interest rate, monthly principal and interest payment, and whether these figures can change over time. You'll also see your projected payments, which include estimates for property taxes, homeowners insurance, and mortgage insurance if applicable.
This page shows whether you have a prepayment penalty or balloon payment, two features that significantly impact your loan's flexibility and long-term cost.
Page 2: Closing Costs Details
Page two breaks down all your closing costs into clear categories. You'll see loan costs separated from other costs, with loan costs including origination charges, points you're paying, and services you cannot shop for (like appraisals). Other costs cover items like title insurance, government recording fees, and prepaid expenses such as homeowners insurance premiums and property taxes.
Page 3: Cash to Close Summaries
This page shows the bottom line: how much money you need to bring to closing. It includes a handy comparison table showing how figures from your initial Loan Estimate compare to the final numbers, highlighting any increases or decreases.
You'll also find a detailed transaction summary showing the sale price, your down payment, seller credits, and any adjustments for prorated taxes or HOA fees.
Page 4: Additional Loan Information
Page four covers important details about your loan's features, including information about escrow accounts, whether you'll have an escrow waiver, and liability details. It explains whether you're personally liable for the loan and what happens if you default.
Page 5: Loan Calculations and Contact Information
The final page provides detailed calculations showing your total payments over the loan's life, the finance charge, amount financed, and annual percentage rate (APR). It also lists contact information for everyone involved in your transaction: lender, mortgage broker, real estate agents, and settlement agent.
What the Closing Disclosure IS:
A Final Accounting of Your Transaction
The CD is your complete financial picture of the home purchase. Every dollar you're spending, every credit you're receiving, and every fee being charged should appear on this document.
A Comparison Tool
The CD is designed to be compared directly with your Loan Estimate, which you received within three days of applying for your mortgage. The format is intentionally similar, making it easy to spot changes. Some fees can increase without limitation, while others have strict caps on how much they can change.
Legal Protection
The CD is a legal document that locks in your loan terms. Once you sign it at closing, both you and the lender are bound by what's written. This protects you from bait-and-switch tactics and ensures transparency.
What the Closing Disclosure is NOT
Not Your First Look at Closing Costs
The CD should not contain surprises if you've been paying attention throughout the mortgage process. Your Loan Estimate, received shortly after application, gave you initial figures. While some costs may change, dramatic differences signal potential problems that should have been addressed earlier.
Not a Guarantee That Nothing Will Change
While the CD is your final disclosure, certain changes can still occur between receiving it and closing day. If interest rates change due to a rate lock expiration, if you decide to change loan programs, or if the closing date moves significantly, you may receive a revised CD. However, most routine closing day adjustments (like prorated tax changes of a day or two) won't require a new CD.
Not Optional to Review
Some buyers, exhausted by the home-buying process and eager to finish, skim or skip reviewing their CD. This is a critical mistake. Errors do happen—misapplied credits, incorrect loan terms, or unexpected fees. Catching these issues before closing is far easier than trying to fix them afterward.
Not the Same as Your Loan Estimate
While formatted similarly, the Loan Estimate is an estimate based on the best information available at the time of application. The Closing Disclosure reflects actual figures based on your specific transaction. Some increases are expected and allowable, but understanding which fees can change and by how much helps you identify potential problems.
Not the Only Document You’ll Sign
At closing, you'll sign many documents beyond acknowledging receipt of the CD. You'll sign the promissory note (your promise to repay the loan), the deed of trust or mortgage (giving the lender a security interest in the property), and numerous other documents. The CD is disclosure and accounting, not the loan agreement itself.
Not a Predictor of Future Costs
The CD shows your costs at closing and initial monthly payment, but it's not a crystal ball for future expenses. Property taxes and insurance premiums change over time. If you have an adjustable-rate mortgage, your payment will change when the rate adjusts. HOA fees increase. The CD captures a moment in time, not a permanent cost structure.
Common Areas of Confusion
Seller Credits and Concessions
Seller credits appear in multiple places on the CD, which can be confusing. They're shown as credits to you in the summaries section and may also appear under "other costs" if the seller is paying specific fees on your behalf. Verify that all negotiated credits appear and are applied correctly.
Prepaids vs. Escrow
Many buyers confuse prepaid items (costs you pay upfront at closing, like homeowners insurance premiums and prepaid interest) with escrow deposits (money collected to establish your escrow account for future tax and insurance payments). Both appear on your CD but serve different purposes.
Daily Interest Charges
The closing date affects how much prepaid interest you owe. Closing on different days of the month changes this figure. If you see a higher prepaid interest charge than expected, verify that it matches the closing date and daily interest calculation based on your loan amount and interest rate.
Lender Credits and Points
Lender credits (money the lender gives you to offset closing costs, usually in exchange for a higher interest rate) appear as negative numbers on your CD. Discount points (money you pay to lower your interest rate) appear as positive charges. Understanding this distinction helps you verify that any negotiated rate/credit arrangements are correctly reflected.
Red Flags to Watch For
Certain discrepancies on your CD warrant immediate attention and questions to your lender or closing agent:
***Significant increases in fees that were supposed to be locked.** Fees for services you couldn't shop for shouldn't increase more than 10% from your Loan Estimate. Fees for services you could shop for (but chose a lender-recommended provider) also have a 10% tolerance. Fees you shopped for independently can change without limitation, but dramatic increases deserve explanation.
**Missing seller credits or concessions.** If your purchase contract includes seller-paid closing costs or specific credits, ensure they appear correctly on your CD.
**Incorrect loan terms.** Your interest rate, loan amount, loan type, and term should match what you locked in. Changes here could indicate a significant problem.
**Unexpected fees or charges.** While some costs may have been unknown at Loan Estimate time, completely new categories of fees appearing on your CD warrant scrutiny.
**Property tax or HOA proration errors.** These calculations can be complex, but they should be based on actual figures and the closing date. Ask your settlement agent to explain any prorations that seem high.
Bottom Line
The Closing Disclosure is more than just another form in a stack of paperwork—it's your financial roadmap for one of the largest transactions of your life. It's a powerful consumer protection tool that provides transparency and prevents last-minute surprises, but only if you take the time to review and understand it.
Think of the CD as your final opportunity to verify that everything you negotiated and agreed to is correctly documented. The three-day waiting period is your friend, not a bureaucratic annoyance. Use it wisely to review carefully, ask questions, and ensure you're prepared for closing day.
When you understand what the Closing Disclosure is—and what it isn't—you transform it from an intimidating legal document into a valuable tool that helps you close on your home with confidence and clarity.
