First Time PurchaserReal EstateResidential TransactionsWhat is a Lender’s Closing Disclosure?

October 11, 2021by Gregory Byrnes

If you are purchasing a home or other property which is not for business, commercial, or agricultural purposes and receiving financing from a lender, the lender must provide you a Closing Disclosure form at least three days prior to the closing.  The Closing Disclosure is a five-page document which details the key terms of the loan and costs. If the Closing Disclosure is not accurately completed at least three days business prior to closing, the closing may be delayed. If your transaction is time sensitive, it is very important that the closing disclosure be accurately completed on time.

What Law Requires a Closing Disclosure?

The Closing Disclosure is required by federal law. Specifically, the Truth in Lending Act (“TILA”) and the Real Estate Settlement Procedures Act (“RESPA”) also known as the TILA-RESPA integrated disclosures or TRID are federal statutes requiring disclosure. Prior to 2015, the Closing Disclosure was taken on a HUD-1 form and is often called a HUD statement, but after the passage of TRID, a new closing disclosure form was created. The HUD-1 still exists; however, it is used primarily for reverse mortgages and mortgage refinance transactions.

What is the Purpose of the Closing Disclosure?

The purpose of the Closing Disclosure is to prevent predatory lending practice such as “bait and switch”. Otherwise, the lender could change the loan terms at the closing table leaving the buyer with little option but to close. The Closing Disclosure includes a table comparing it the loan estimate you received when you first received your loan estimate. In fact, there are legal limits on the amount charges that can changed between the loan estimate and Closing Disclosure. The purpose of the three-day waiting period is to provide sufficient time to review the disclosure.

What is included in the Closing Disclosure?

The Closing Disclosure details two main categories after the transaction details, loan costs and other costs. Loan costs include, but are not limited to, original fees, application fees, discount points, title fees, settlement agent costs, appraisal and credit report fees and other services provided by the lender. Other costs include property tax payments, insurance premiums, mortgage payment, flood insurance, attorneys’ fees, prepaid costs and other costs or fees.

Can the Closing Disclosure Three Day Waiting Period be Waived?

Yes, a buyer can waive a Closing Disclosure, however, the criteria are very specific, and it is difficult to do so. The requirements to waive the Closing Disclosure are i) the buyer must have a personal financial emergency, ii) the buyer received the Closing Disclosure, and iii) the buyer provided a signed letter to the lender explaining the personal emergency and necessity to close. However, the lender is under no obligation to waive the three-day waiting period. In fact, many lenders will not permit buyers to close early to avoid risk of afoul of TRID. The Closing Disclosure waiting period is intentionally difficult to waive because the legislature sought to protect buyers from predatory lenders.

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