by E. Drew Nelson, Attorney at Law
If you have ever bought or sold a house, you know there is a lot of paperwork! The residential real estate closing disclosure is a very important document that summarizes the overall transaction. This document replaces the old HUD-1 form that was used prior to October 2015 for residential financed closings.
What is the closing disclosure?
The closing disclosure is a document that outlines the terms of your mortgage loan and closing costs. The document explains the loan terms, projected payments, closing costs (loan costs, other costs), payoffs or other expenses at closing and the amount of cash you will pay at closing (if any).
Loan Terms
The closing closure details how much you are borrowing and at what interest rate, what your monthly principal and interest payment will be. If the loan amount, interest rate, or monthly principal plus interest are subject to increase, that will be noted here. This may be the case if your loan is a variable rate loan.
Projected Payments
This section of the form provides details about your estimated monthly payment, including mortgage insurance, if required (usually if your equity in the home is less than 20%, lenders will require you to purchase mortgage insurance that ensures they do not lose money if you default), and your estimated escrow amount. [An escrow account saves these funds separately and securely for future use.]
Most mortgage lenders require you to pay property taxes and insurance as part of your monthly payment. These funds are placed in escrow each month and the mortgage lender pays the annual bills from the tax assessor’s office and the insurance company when they comes in. This gives them control (and protects their interests) and allows them to ensure these critical fees are paid; from a consumer perspective, it ensures you are not hit with two large bills that must be paid quickly. Taxes and insurance often increase each year, so your monthly payment for year two may be higher than year one.
Costs at Closing
There are a number of standard costs associated with a residential real estate transaction. Some are paid by the seller, while others are paid by the borrower. These costs are outlined on page two of the closing disclosure and may include such things as points, a commitment fee, credit report, title coverage, deed recording fees, attorney fees for handling the closing, your first year of homeowners insurance, prepaid interest (based on the day of month you close), and property taxes for the remainder of the year in which you purchase the house.
Payoffs and Payments
If there are any other payments that will be made from the loan proceeds, those will be noted here. This generally will include the loan payoff amount from your current mortgage (if any), payment of any outstanding debt from a second mortgage or home equity line of credit on the home you are selling, outstanding judgments, etc.
Cash to Close
Finally, the last chart shows the breakout of loan funds and whether or not you will need to bring cash to closing (usually in the form of an official bank check) or will receive money back. This section summarizes the detail from the sections above it. We recommend you compare these numbers to what you received in your original Loan Estimate and ask any questions you may have.
If you are buying or selling real estate and are looking for a closing attorney, please contact Brinkley Walser Stoner to schedule an appointment.