Buying your first home is an important milestone for many Miami-area residents. But unlike renting an apartment, where you typically only need to worry about a lease, taking out a mortgage to purchase a home is significantly more complicated. During the closing you will be required to review and sign a number of forms, including a promissory note and the mortgage itself, which may be overwhelming for a first-time buyer.
You may be confused as to what exactly you agreed to (or thought you agreed to) when initially applying for your mortgage. In some cases the documents that you receive at closing may not match what you were previously told. To help avoid such situations and to prevent lenders from taking advantage of inexperienced borrowers, federal law requires a Closing Disclosure.
What is a Closing Disclosure?
The Closing Disclosure is a relatively straightforward five-page form created by the U.S. Consumer Financial Protection Bureau (CFPB) in 2015. It replaced an earlier form, known as the HUD-1 Settlement Statement, that applied to mortgage loans issued prior to October 2015. CFPB regulations require your mortgage lender to provide a Closing Disclosure at least three business days before the closing date. This gives the borrower time to review the information and ensure the proposed terms of the mortgage are acceptable. In particular, the borrower should take note of any differences between the terms specified on the Closing Disclosure and the Loan Estimate, which is a separate document also mandated by the CFPB.
So what exactly does the Closing Disclosure disclose? For starters, it tells the borrower the amount of the loan and the interest rate, as well as the monthly payment. Some mortgages also require an “escrow” or “impound” account for items like homeowner’s insurance, property taxes, and homeowners’ association dues. The Closing Disclosure must include an estimate of these additional costs and indicate whether it will be paid thru an escrow account.
The Closing Disclosure will also identifies the actual closing costs, i.e. how much cash you will need to complete the sale on the closing date. Closing costs often include third-party services required by the mortgage lender as a condition of the loan, such as appraisal fees and the cost of running a credit report. There are other closing costs that may be paid by the seller, which should also be itemized on the Closing Disclosure.
Finally, the Closing Disclosure will inform the borrower of the consequences if a monthly mortgage payment is not paid on time. Most lenders will charge a late payment fee. Some may accept partial monthly payments. Conversely, the lender may assess an additional fee if the borrower wants to pay off the entire mortgage early. The Closing Disclosure must inform the borrower of these potential costs.
Simply Legal Can Help With Your Due Diligence
There is often a mad dash to complete a home sale. Although you may be receiving pressure from your real estate brokers to close and despite your family members asking, “When do you move in?”, you should be sure to avoid overlooking any formalities before signing on the dotted line as purchasing a home is a major commitment of your time and money. You need to proceed carefully and exercise due diligence at every stage of the transaction. Our experienced Miami real estate lawyer can help look out for your best interests. Call the attorneys at Simply Legal today at (305) 858-6208 to schedule a complimentary consultation to discuss your property, next purchase, or sale.