According to mortgage industry regulations, the lender must provide a Closing Disclosure to the borrower that outlines the final, actual terms of you loan including mortgage rate, closing costs and loan features at least three business days prior to the closing. For example, if the borrower received the closing disclosure on a Monday, the earliest the mortgage could close is Thursday. Typically the borrower receives the Closing Disclosure when he or she signs loan documents prior to the mortgage closing.
The purpose of the Closing Disclosure is for borrowers to understand how and why their mortgage terms changed as compared to the terms the lender offered at the beginning of the mortgage process. The Closing Disclosure outlines what loan terms can change and by how much as a way to protect borrowers against a lender bait and switch. A bait and switch is when a lender promises you an attractive set of mortgage terms to win your business even though they know they cannot deliver those terms. The lender attempts to change the terms, such as charging you a higher mortgage rate or closing costs, toward the end of the mortgage process when borrowers are under pressure to close their loan. The Closing Disclosure is supposed to reduce these lender tactics by providing more information to borrowers.
Because the Closing Disclosure must be provided no less than three days prior to mortgage closing, it could extend the amount of time it takes to process and close your mortgage. For example, all parties may be ready to close the mortgage but if the Closing Disclosure has not been delivered to the borrower then the mortgage cannot be finalized. Borrowers should keep in mind the three day Closing Disclosure waiting period when determining how long it will take to process and close their loans.
The Closing Disclosure must be delivered by the lender to the borrower in-person or by email or mail at least three business days prior to the mortgage closing. If mailed or emailed, the consumer is considered to have received the Closing Disclosure within three business days after the document is delivered or placed in the mail. For example, if the lender mails the closing disclosure to the borrower on a Monday, the borrower is considered to have received the closing disclosure on Thursday and the earliest the mortgage could close is the following Monday (assuming Saturday counts as a business day).
The settlement agent (also known as a closing agent) that administers the mortgage closing process and transfer of funds may provide the Closing Disclosure to the borrower on behalf of the lender; however, the lender is legally responsible for for the Closing Disclosure. The Closing Disclosure must be provided separately to each borrower who has the legal right to cancel or rescind the mortgage prior to closing.
Lenders are required to issue a revised Closing Disclosure if certain changes occur to the mortgage terms after the first Closing Disclosure was issued that cause it to become inaccurate. Below, we outline the three changes that occur before mortgage closing that require a new three business day waiting period after the revised Closing Disclosure is issued. All other changes changes that occur before closing require a revised Closing Disclosure to be issued but do not require a new three day waiting period.
Lenders must issue a revised Closing Disclosure if an event occurs within 30 days of the mortgage closing that causes the Closing Disclosure to be inaccurate and results in a change to a cost paid by the borrower. The revised Closing Disclosure must be provided to the borrower no later than 30 calendar days after the lender becomes aware that the event occurred.
The borrower should use the Closing Disclosure document to verify that he or she is receiving a mortgage at the terms agreed to at the start of the process. At the beginning of the mortgage process the lender provides the borrower a Loan Estimate that outlines a good faith estimate of key mortgage terms such as interest rate and closing costs. Prior to your mortgage closing, you should compare the Closing Disclosure with the Loan Estimate to ensure that your final, actual mortgage rate and closing costs did not increase significantly as compared to the initial terms provided in the Loan Estimate.
If there are meaningful discrepancies between the Closing Disclosure and Loan Estimate and the final mortgage terms have changed or increased significantly, then ask the lender for an explanation as this could be a sign that you are getting ripped off. You should cancel (also known as rescind) the mortgage if you are not satisfied with the lenderâ€™s explanation and the discrepancies cannot be resolved. For a home purchase loan, you can cancel your mortgage at any time before you sign loan documents and you are free to work with a different lender. Although you may be out non-refundable costs such as your appraisal fee and certain lender fees, canceling a bad mortgage will save you much more money over the life of the mortgage.
For a mortgage to purchase a home, borrowers cannot cancel the mortgage after they have signed loan documents. For a refinance, you can cancel your mortgage up to three business days after signing loan documents and then you are free to work with a different lender. We recommend that you do not sign your loan documents if you identify any significant issues or discrepancies.
One way to avoid potential negative surprises is to lock your mortgage. That way, all key terms and costs are agreed to by you and the lender at the start of the process and remain unchanged through the closing of your mortgage.
The Closing Disclosure contains much of the same information as the Loan Estimate although the information is presented in a somewhat different layout. We summarize each page of the Closing Disclosure below.
"Mortgage Disclosure Rule." Consumer Protection Topics - Mortgages. Federal Deposit Insurance Corporation, January 8 2018. Web.