Closing Disclosure: What It Is, How It Works, and How to Read One

Closing is part of every real estate transaction, and so is a closing disclosure. Closing is when ownership of the property is transferred, along with the money to buy the property and cover transaction costs. Mortgage lenders must provide a closing disclosure at least three days before closing. This guide explains what's in the disclosure and what to do with it.

What is a closing disclosure?

A closing disclosure provides a detailed picture of what money will change hands at closing, as well as the terms of your mortgage loan. This five-page form includes details on your mortgage rate and monthly payments. It also breaks down total transaction fees. And it adds up the amount of cash to bring to closing.

Closing disclosures provide important information about:

• Mortgage rates
• Monthly payments
• Total loan costs
• Whether the loan rate and payment can change over time

Carefully compare the disclosure to the loan estimate. That's a form your lender provided when you applied for your mortgage. If you notice any mistakes, correct them before closing.

How does a closing disclosure work?

You don't have to do anything to receive a closing disclosure. Your lender must provide it at least three days before the closing date. That's when the property officially changes hands.

You'll already have been approved for a loan and will be almost ready to get the keys to your property when you receive a closing disclosure. It provides a big-picture snapshot of your loan.

Review it carefully. Ensure the loan terms are as expected. Confirm that you understand the loan and how it works. And gather the money you need to close. If you have concerns or spot any mistakes, address them with your mortgage lender. All your closing documents need to be in order before you commit to borrow.

What is in a closing disclosure?

A closing disclosure contains the following key information:

• Personal details about the buyer and seller: This includes full names and the property address.
• Basic loan information: This includes the loan term, its purpose (purchase or refinance), and the loan type (whether it's a conventional mortgage or government-backed loan).
• Loan terms: This is where you'll find the amount borrowed, interest rate, monthly payments, and whether these amounts can change. The disclosure also notes if there's a balloon payment or prepayment penalty.
• Projected payments: This section breaks down your monthly payments. You'll see the amount you'll pay in principal and interest, as well as expenses like taxes and homeowners insurance. Separate columns show the difference between the first seven years of the loan and those that follow.
• Costs due at closing: This is a summary of the total transaction fees. It shows the cash you must bring to closing.
• Loan costs: This details the closing costs you'll pay your lender, such as origination and application fees. It also includes other third-party services, such as title insurance and an appraisal fee.
• Other costs: Here you'll find details about government fees to transfer property. It also details prepaid expenses, such as interest or taxes owed upfront. There are also sections for miscellaneous expenses.
• Calculating cash to close: This table breaks down the total closing cost. You'll see your down payment here, as well as anything you already paid. Finally, it shows the amount of money you must pay to close.
• Summaries of transactions: This is a big-picture breakdown of both buyer and seller payments.
• Loan disclosures: You'll find additional information about your loan here, such as late fees and how your lender treats partial payments. It will cover how your escrow account works. That's money lenders collect monthly in a special account to cover taxes and insurance.
• Loan calculations: This breaks down the total amount of payments you'll make over the life of the loan. That includes principal, interest, and mortgage insurance. You'll also see your APR (annual costs of borrowing, including fees).

Sample closing disclosure

Each closing disclosure follows the same format. Look at a sample so you'll know what to expect when your lender sends yours. This sample closing disclosure from the Consumer Financial Protection Bureau also provides some tips on what to look for.

How to check your closing disclosure

When you receive your closing disclosure you have three days to check the information. Here's what to do:

• Look it over carefully to ensure there are no mistakes. Make sure the names and addresses are correct. Confirm the details about your loan are accurate.
• Compare it to your loan disclosure. Your lender will have provided you a similar breakdown of costs, called a loan disclosure, when you applied for a loan. Make sure the numbers match up. If they don't, contact your lender to find out why.
• Make sure you understand all your loan terms. Focus on the APR, repayment timeline, monthly payment amounts, fees, and total loan costs. Use a mortgage calculator to make sure it's accurate. If you have questions, ask your lender before you agree to borrow.
• Ensure you have the money for closing. You'll see exactly how much cash is required. Generally, you will need to wire this money or provide a cashier's check.

Still have questions?

Here are some other questions we've answered:

• Closing on a House: What to Expect
• How to Get Pre-Approved for a Mortgage
• How to Make an Offer on a House