Real Estate Word of the Day: Disclosure
A closing disclosure (CD) is a comprehensive document provided to both the buyer and the seller shortly before the closing date of a real estate transaction. This document outlines the final details of the financial aspects of the deal, including the terms of the mortgage loan and any other costs associated with the transaction. Essentially, it's a summary of the final financial agreement between the parties involved in the sale or purchase of a property.
Key Components of a Closing Disclosure
- Loan Terms: The CD will include detailed information about the loan, including the loan amount, interest rate, loan type, and loan term. This section ensures that both parties are on the same page regarding the financing of the property.
- Projected Payments: The document will outline the estimated monthly mortgage payment, including principal, interest, taxes, insurance, and any other related fees. This provides a clear understanding of the ongoing financial commitment required from the buyer.
- Closing Costs: One of the most crucial aspects of the Closing Disclosure is the breakdown of closing costs. These costs can include appraisal fees, title insurance, attorney fees, and more. Both buyers and sellers should review these costs carefully to avoid any surprises during the closing process.
- Cash to Close: This section details the amount of money the buyer needs to bring to the closing table. It accounts for the down payment, closing costs, and any other prepaid expenses. Sellers will also see the amount they'll receive from the sale after deducting their own expenses.
- Comparisons: The CD often includes a comparison of the buyer's Loan Estimate (LE) and the final Closing Disclosure to help identify any significant changes that may have occurred since the initial loan offer.
Closing Disclosures promote transparency by ensuring that both parties have a clear understanding of the financial aspects of the transaction. This transparency helps prevent misunderstandings and disputes down the line. The CD is a result of the TILA-RESPA Integrated Disclosure (TRID) rule, which was designed to protect consumers by providing them with accurate and transparent information about their mortgage loans. By reviewing the Closing Disclosure before the closing date, both buyers and sellers can identify any discrepancies or unexpected charges. This allows for necessary corrections and avoids last-minute surprises.
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