How to Compare your Loan Estimate with your Closing Disclosure
During the process of buying a house and applying for a mortgage loan, there are documents that are critically important to understand. The first, is a loan estimate and the second is a closing disclosure. Home buyers will be presented each and the beginning and end of the buying process respectively. Comparing these two documents is important for understanding the terms of your home loan to ensure nothing has changed since the beginning of the process.
What is a Loan Estimate?
Per the Consumer Finance Protection Bureau, loan estimates are, “designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying.” The document, three pages long, provides loan applicants with clear and concise details of the costs associated with and the terms of their loan.
Included in this three-page document are the projected monthly mortgage payments including taxes, insurance, and any other fees and or assessments. It also includes the estimated closing cost, or the total amount of cash you’ll need at the settlement. By law, this document must be presented to the buyer within three days of submitting their loan application.
What is a Closing Disclosure?
A closing disclosure is a five-page form that provides the final details of the mortgage loan the buyer is applying for. This provides the buyer with the final estimated monthly mortgage payments and other associated costs such as taxes, insurance, etc. Closing disclosures also contain information regarding, among other things, final escrow payments, interest rates, if there are any prepayment penalties or balloon payments, and what figures have changed since the initial loan estimate and why. This document must be presented to the buyer within three days of the closing to provide adequate time to assess and inquire about any changes.
How to compare the documents
When comparing your loan estimate with your closing disclosure the very first thing is to look over the closing disclosure side by side with your loan estimate. The two main things to look at are the mortgage rate (found on the middle of the first page on your CD) and the final total closing cost (found on the bottom of page one on your CD) to ensure your costs did not increase significantly.
If you notice a significant change such as a higher mortgage rate or closing cost, you may be a victim of a ‘bait and switch’ move from your lender. In that event, you should ask your lender to explain the changes. If you are not satisfied with your lenders’ explanation, you are free to rescind your mortgage and work with a different lender (you may however be out any non-refundable costs already paid out such as an appraisal fee).
To prevent being subject to a ‘bait and switch,’ you may lock your mortgage. This guarantees certain rates for a specific period of time, typically between 30 and 60 days. You should make sure that your scheduled lock time gives you long enough to close.