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Loan Disclosure

The Loan Disclosure document is supposed to be made available to you by law three days before your closing. Like the Loan Estimate, it gives you information in a specific format that has all the information for your closing in an understandable format.

It is your legal right to receive the Loan Disclosure.

The Loan Disclosure has all of the fees that you will pay as part of your mortgage and also at your closing.

When you put the date of your closing on your calendar, put the date of three days before closing and make sure you get this form on time. You’ll want the full three days in case you see things that aren’t correct.

This is what the Loan Disclosure looks like (here’s a downloadable version in PDF format):

What to check

According to the Consumer Financial Protection Bureau, the federal agency that mandated that this form be presented to all home buyers no later than three days before their scheduled closing, in order to protect yourself you should:

  1. Check the spelling of your name
  2. Check that loan term, purpose, product, and loan type match your most recent Loan Estimate
  3. Check that the loan amount matches your most recent Loan Estimate
  4. Check your interest rate
  5. Does your loan have a prepayment penalty?
  6. Does your loan have a balloon payment? (a balloon payment is a large payment due at a certain number of years after you get the loan. You will want to avoid loans like this, as most people can’t afford the balloon payments and then risk foreclosure).
  7. Check that your Estimated Total Monthly Payment matches your most recent Loan Estimate
  8. Check to see if you have items in Estimated Taxes, Insurance & Assessments that are not in escrow
  9. Check that your Closing Costs match your most recent Loan Estimate
  10. Check that your Cash to Close matches your most recent Loan Estimate

Can your final mortgage costs increase from what was on your Loan Estimate?

Some mortgage costs can increase at closing, but others can’t. It is illegal for lenders to deliberately underestimate the costs on your Loan Estimate. However, lenders are allowed to change some costs under certain circumstances.

Interest rate

If your interest rate is not locked, it can change at any time. Even if your interest rate is locked, your interest rate can change if there are changes to your application information or if you do not close within the rate-lock timeframe. Check at the top of page 1 of your Loan Estimate to see whether your rate is locked, and until when.

Closing costs

There are three categories of closing costs. Some closing costs the lender can increase by any amount, some the lender can increase by up to 10 percent, and some the lender can’t increase at all.

However, under certain circumstances these rules do not apply. For example, your lender is allowed to change your closing costs without restriction if:

You decided to get a different kind of loan or change the amount of your down payment
The appraisal on the home you want to buy came in higher or lower than expected
You took out a new loan or missed a payment and that has changed your credit
Your lender could not document your overtime, bonus, or other income
These types of situations are called a “change in circumstances”.

Costs that can increase by any amount

These costs are not controlled by the lender, and can increase by any amount at any time:

Prepaid interest, property insurance premiums, or initial escrow account deposits
Fees for services required by the lender that you have shopped separately for, if you choose a service provider that is not on the lender’s written list of providers
Fees for third-party services that the lender does not require

Costs that cannot increase at all

If there is a “change in circumstances,” these costs can change by any amount, but otherwise they cannot change at all:

Fees paid to the lender, mortgage broker, or an affiliate of either the lender or mortgage broker for a required service
Fees for required service that the lender did not allow you to shop separately for, when the provider is not affiliated with the lender or mortgage broker
Transfer taxes

Costs that can increase by up to 10 percent

If there is a “change in circumstances,” these costs can change by any amount. If there is no change in circumstances, then the total of these costs cannot increase by more than 10 percent:

Recording fees
Fees for required services when you have chosen a third-party service provider on the lender’s written list of providers (if the provider is an affiliate of the lender, the cost cannot change at all)

What happens when the costs change?

If your application has a “change in circumstances,” you will likely receive a revised Loan Estimate. If the costs have increased more than the allowed limits and your application has not had a “change in circumstances,” you are entitled to a refund of the amount above the allowable limits.

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