Reviewing Closing Paperwork
Compare Loan Estimate to Closing Disclosure
You'll want to review your closing paperwork shortly before your closing day. The Closing Disclosure is a final review of all loan fees and costs and must be made available to buyers at least three business days before closing.
This is a relatively new document that came out of the banking and mortgage industry reforms following the housing crisis. The new Closing Disclosure replaced two longtime federal forms, the final Truth-in-Lending statement and the HUD-1 settlement statement.
The Closing Disclosure will help you compare how costs and fees may have changed since you received your Loan Estimate during the preapproval stage. The Loan Estimate does a good job of approximating loan fees, but it isn’t an exact representation of your final costs.
When the lender provides your Loan Estimate, they'll also identify what closing-related services you can shop for and include a list of companies to consider. Some of these services can include things like title work, closing agents and homeowners insurance. Regarding the services for which you can shop, you’re not required to use any of the companies identified by the lender.
Fees That Can't Change
Some of your closing costs and fees aren’t allowed to change without an exception between when you receive the Loan Estimate and your closing day.
Those set fees include:
- What lenders charge for their own services, such as an origination fee
- Costs charged by an affiliate of the lender
- Transfer taxes
- Any costs for which the lender doesn’t allow you to shop for competing offers
Fee Changes Up to 10 Percent
Other charges that were estimated on the Loan Estimate can change in your Closing Disclosure. Government recording fees may have dropped. Property tax due dates can cause swings in closing cost estimates. Fee changes are also common if you shop around for and choose third-party services not suggested by your lender.
Some fees are allowed to increase up to 10 percent upon settlement unless there’s an exception, including:
- Government recording charges
- Fees for third-party services where you’re not paying the lender or an affiliate of the lender, but you shop around and ultimately choose a company from the list your lender provided
Fees Changes Without Limit
There’s also a third category of charges that can fluctuate without limit. Those include:
- Required services that you can shop for (if you do not use companies that your lender identifies)
- Title services and title insurance (if you do not use companies that your lender identifies)
- Initial deposit for your escrow account
- Prepaid interest charges
- Homeowners insurance charges
Since there are so many charges that can fluctuate, a Loan Estimate rarely hits all costs on the head. That’s where the Closing Disclosure comes into play.
Closing Disclosure Breakdown
The first page of the Closing Disclosure features the same headings and categories as the first page of the Loan Estimate. You’ll be able to see how your estimated total monthly payment has changed from your Loan Estimate, if at all. You’ll also see final tallies for your closing costs and the overall amount of cash needed to close.
The second page provides a full breakdown of all closing costs, including a look at which costs are paid at closing; which costs were paid before closing; which costs are paid by the buyer; and which ones are covered by the seller.
The third page contains a table comparing the final cash-to-close calculation to the initial numbers from your Loan Estimate. You’ll also get a summary of the transaction from both the buyer’s and the seller’s perspectives, meaning you’ll see your total cash needed to close as well as how much cash the seller stands to gain.
The fourth page provides additional information about the loan. You’ll learn more about:
- Whether loan assumptions are permitted
- What kind of late payment deadline and fees come with the loan
- Whether your loan can accrue negative amortization, which happens when your monthly payments don’t cover all of the interest due; recent mortgage industry changes have made this risky feature increasingly rare
- Whether your lender will accept partial mortgage payments
- How much you’ll be escrowing for homeowners insurance and property taxes during the first year of the loan and what that costs on a monthly basis
The fifth page of the Closing Disclosure shows borrowers how much the loan will cost them over the entire term of the mortgage. You’ll also see your final Annual Percentage Rate (APR), which is different from the loan’s interest rate and reflects the total costs of borrowing, and the Total Interest Percentage (TIP), a figure that shows how much interest you’ll pay over the life of the loan as a percentage of the loan amount.
You’ll also find contact information for your lender, your real estate agent and other key stakeholders in your closing process.
It’s also important to understand that big changes to your loan terms or last-minute changes to your contract could result in the need for an updated Closing Disclosure. Because the document must be disclosed to borrowers at least three business days before their closing, the need for an updated disclosure could delay your originally scheduled loan closing.
Talk with your loan officer and your real estate agent if you have any questions about your Closing Disclosure.
How Long Does it Take to Close?
You first start talking about a closing date before you’re even under contract on a home. It’s usually something the buyer will suggest in their offer, and the seller either agrees or the two of you settle on a different time frame.
The closing date in your contract isn’t set in stone. Some of it depends on things beyond your control. For example, during the peak homebuying season, third-party items like title work, appraisals and inspections may take longer than usual. In other cases, it’s about how quickly you can satisfy any conditions holding up your clear to close.
Broadly, there’s a lingering misconception out there that VA purchase loans take forever to close. The reality is VA loans more than keep pace with the other loan types, including conventional loans. Most VA purchase loans close in 30 to 45 days, just like the average conventional or FHA purchase loan.
To be sure, every buyer’s timeline is different. But using a VA loan doesn’t put veterans and service members at a disadvantage regarding how long it takes to close.