Overview: How To Read Your Closing Disclosure

In the closing disclosure, we talk about what it is and how to read it.

Here is a part-by-part explanation of the Closing Disclosure that we have given.

Loan Term

This part of the disclosure statement tells you about the details of your mortgage loan. It gives you a good idea of how much you'll spend and how long it will take you to pay it off. It is made up of the five parts below:

Loan amount: This is the total amount you expect to borrow after subtracting the amount you plan to put down as a down payment and adding any fees or costs that will be added to your loan. Talk to your lender if this amount is more than you thought it would be for your loan and you don't know why.

How much money a loan costs: When you borrow money, you pay a fee in the form of an interest rate. Your interest rate is a percentage of the total loan amount that you pay back each year as interest for the privilege of borrowing money. It is part of the amount you pay toward your mortgage each month. If you have already locked in your rate, the interest rate on your Loan Estimate shouldn't change.

Payments of principal and interest on a regular schedule: Here, you can see how much you'll have to pay in interest and the original loan amount. Please keep in mind that mortgage insurance and escrow payments that are part of your regular payment will not be shown here.

A fee for making a payment early: Some lenders charge an extra fee, called a "prepayment penalty," to people who pay off their mortgage early. This has nothing to do with any mortgage that can be gotten through Rocket Mortgage®.

A balloon payment is a one-time payment that is due at the end of the loan term. If your mortgage has a "balloon payment," your monthly payments will probably go down in the years leading up to the date when the one-time payment is due. By the time the loan is paid off, you might still owe a lot of money. There is a possible risk here. Through Rocket Mortgage, you can never buy or refinance a mortgage with a balloon payment.

Projected Payments

In this part of the Closing Disclosure, the main parts of your mortgage loan are broken down, and an example is given of how your monthly payments will change over the life of the loan. It gives you the best picture possible of what your monthly and yearly financial obligations are.

Payment calculation: Your mortgage loan includes both the principal and the interest, as well as mortgage insurance (if it's required) and an estimated escrow account, which is used to pay both your homeowners insurance and your property taxes (if you have one). In this section, you'll find a list of all the payments you'll have to make over the life of your mortgage. If your mortgage payment can change, like if you have an adjustable-rate mortgage, a calculation will be done to figure out the most your payment can go up or down each time. This calculation will be based on the limits of your interest rate.

Estimated total monthly payment: This is the amount that will be taken out of your account every month. It covers the principal, the interest, the mortgage insurance, and the escrow amount. Most likely, your mortgage lender will ask you to open an escrow account so they can keep your property tax bills and insurance premium payments in a safe place. Not all mortgages come with escrow accounts, but if you choose to have one for your mortgage, your expected monthly payments will be shown here. If something in this section is very different from what was written in the Loan Estimate, you should ask your lender why. It is important to figure out if you will be able to pay the expected amount of your monthly payments for the whole length of your mortgage.

Estimated taxes, insurance and assessments: You don't have to put your taxes and insurance premiums into an escrow account, but this part of the contract explains what will happen if you don't. Escrow accounts usually don't pay for things like property taxes, homeowners insurance, and dues to a homeowners association. Make sure your budget has enough money to cover these costs over the course of the year.

Costs At Closing

In this part of the document, the closing costs are broken down even more so that you can get a better idea of how much you will have to pay your lender during the closing process. Most of the time, three to six percent of your total loan amount will go toward closing costs.

The amount of cash needed to close is listed at the very bottom of the list of costs. This is the total amount of money you will need when you go to close on the property. Since it already includes the amount of your down payment, the amount shown will be more than the total of all the other costs you have to pay to close the deal.

Loan Costs

This part of the Closing Disclosure tells you everything you need to know about the costs of getting your mortgage loan.

• Origination fees for setting up the loan could be anywhere from 0.5% to 1% of the total loan amount. The origination fee will cover all of the administrative costs that come with your mortgage application.
• If you bought mortgage points, the amount you paid for them will be shown here. When you pay points on a loan, the overall interest rate goes down. One point is equal to 1% of the total amount of the loan. If the total of your loan is $200,000, for example, one point will cost you $2,000. In addition to the origination fee, mortgage points are listed on the Closing Disclosure under the heading "Origination Charges."
• The application fee you'll have to pay will cover the cost of processing your mortgage application. The total cost is different for each lender.
• Fee for underwriting the loan: When a lender underwrites your loan, they look at all of your finances to figure out how risky it is to give you money. You have to pay an underwriting fee for this. The underwriting charge is already included in the loan's fees.
• Services borrower did not shop for: This is a list of services that have to be done by law, as decided by the lending institution. It could include the cost of an appraisal, a credit report, a fee to find out if flooding will happen, a fee to keep track of taxes, and a fee to look into the tax status. Compare the fees listed on your Loan Estimate to these fees to make sure that they are the same. Even if the prices have changed slightly, they should be similar.
• Services borrower can shop: These are the third-party services that the borrower did shop around for. You might have been able to do better on your own. Some of them could be a termite check, a land survey, and other services that have to do with the title (including title insurance, settlement agent and title search fees).

Some other costs

Your mortgage may have extra costs, such as taxes and fees from the government, prepaids, an initial payment into an escrow account at the time of closing, and possibly other payments as well.

• Taxes and other government fees You'll see recording fees on this page. These are the costs of putting the new deed and mortgage into the public records in a legal way. This group includes these fees, as well as taxes and other government fees. The total price includes transfer taxes, which are paid when a property changes hands or when a mortgage loan is made. In addition to these taxes, county and possibly state taxes are also taken into account.
• Prepaids: This section will tell you how much money you need to put in escrow for things like a homeowners insurance premium, a mortgage insurance premium, prepaid interest, or property taxes. This section will also tell you how much money you need to put in escrow for certain costs that have already been paid.
• Initial escrow payment at closing: Here is the total amount you'll need to pay at closing, including the amount that will go into your first escrow payment for homeowners insurance, mortgage insurance, and property taxes.
• Other: In addition to the down payment and closing costs, you may have to pay other fees and costs, such as homeowners association fees, the price of a home inspection, the price of a home warranty, real estate commissions, and title insurance.

At the end of this section, all of the extra costs are added up to give you a more complete picture of the situation.

Cash to Close: Doing the Math

The total amount of cash you need to bring to the closing table is called "cash to close." This number includes any down payments you have already given to the seller. Also, it will say how much money, if any, the seller plans to give you to help pay your closing costs. A seller concession is this kind of payment. At the closing table, you can talk to the seller about who will pay for these last costs.

Accounts of the transactions in great detail

This part shows a side-by-side comparison of the costs the borrower and the seller have to pay at closing. You will be able to see changes to items that the seller has already been paid for. This includes taxes, fees, and assessments that the homeowners association requires and that the seller has already paid. Also, it lets you know what the seller has to pay at the closing (such as payoff amounts of all mortgages, closing costs, seller credits and more).

At the end of this section, there is a detailed breakdown of how much is due from the seller and how much is due to the seller at the closing. It also shows how much you owe and how much you have already paid before the closure.

Loan Disclosures

You can find more information and details about the terms of your loan in the section called "loan disclosure." These are some of the things that have come to light:

Assumption: This section will tell you whether or not the loan can be taken over by another person with few or no changes to the terms, including the interest rate. Assumption: This part will tell you if you can take over the loan.

Demand feature This is where you can find out if your loan package includes a demand feature or not. If your loan has a demand feature, the lender can ask for the full loan balance (principal and interest) to be paid right away at any time. This can happen no matter if you are behind on your payments or not.

Late payment: It is very important to make sure you pay your bills on time if you want to keep a good reputation with credit bureaus. On the other hand, you need to know ahead of time if your loan has a late payment fee and when that fee will be charged.

When a loan has negative amortization, it is not fully paid off when the repayment period is over. In other words, any interest payments that aren't made during the loan's term are added to the main debt that was owed in the first place.

If you can't pay your mortgage in full one month, you may be able to make partial payments instead. In this section, it will say if the loan can be paid back in parts or not. It's possible that the terms of your loan will say that any partial payment you make needs to go into a separate account instead of going toward the loan's principal balance. You might also have to pay a late payment fee until you pay off the rest of your bill. If you can't make a full payment, you need to have a backup plan.

Security interest: If you don't pay your mortgage or don't follow the terms of your loan agreement, the lender can sell your property to get the money you owe on the loan.

Account for escrow: This section gives a full summary of your escrow account, including whether or not you have one, the homeownership costs that go into the escrow account, and the amount you'll have to put into the escrow account each month. If your Closing Disclosure doesn't have a description of an escrow account and you want to pay your property taxes and homeowners insurance each month, talk to your lender.

Calculations for loans

In this section, you'll find out how much interest you'll have to pay on your loan over its entire length. In other words, it will show you a summary of all the payments you have to make over the life of the loan, including the finance charges, the amount you are borrowing, and the annual percentage rate (APR).

Other Disclosures

In this section, you can find general information about the appraisal (if it applies), as well as information about the contract, refinancing, and tax deductions. All of this is common sense, but the terms of your loan will tell you if the laws in your state will protect you from being held responsible for the unpaid balance after the property has been repossessed.

Contact Information And Confirm Receipt

Last but not least, the very last part has spaces for your signature and contact information. You will be shown the following: "By signing, all you're doing is proving that you got this form. Thank you for getting along." You are not required to take this loan just because you signed this form or got it in the mail. To put it another way, you are not required to get the loan just because you signed the application.

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