Think of mortgage disclosures as the official “nutrition label” for your home loan. Before you commit to what might be the biggest purchase of your life, federal law ensures you receive a clear, standardized breakdown of all the “ingredients”—the interest rate, fees, monthly payments, and total costs.
These documents weren’t always so clear. Before the 2008 financial crisis, the paperwork was often a confusing mix of forms. To fix this, the Consumer Financial Protection Bureau (CFPB) created the “Know Before You Owe” mortgage rule, also known as the TILA-RESPA Integrated Disclosure (TRID) rule. This simplified the process by introducing two main, easy-to-read forms that all lenders must use. The goal is to empower you to make an informed decision without needing a law degree.
Key Disclosures: Loan Estimate and Closing Disclosure
While you’ll receive several documents, your focus should be on two critical ones that bookend your loan approval process.
The Loan Estimate (LE): Your Shopping Guide
Within three business days of applying for a mortgage, your lender must send you a Loan Estimate. Think of the LE as a detailed price quote. This three-page form outlines the estimated costs and terms of the loan. Its standardized format makes it easy to compare offers from multiple lenders side-by-side to see who is offering a better interest rate or charging lower fees.
Key items to review on your Loan Estimate:
- Loan Terms: The total loan amount, interest rate (and whether it’s a fixed-rate or an adjustable-rate mortgage), and the monthly principal and interest payment.
- Projected Payments: A breakdown of your total estimated monthly payment, including taxes, homeowner’s insurance, and any mortgage insurance (PITI).
- Closing Costs: An itemized list of loan costs, such as origination fees, appraisal fees, and title insurance.
The Closing Disclosure (CD): The Final Agreement
Just before you finalize the loan, you’ll receive the Closing Disclosure. Lenders must provide this five-page document at least three business days before your scheduled closing. This mandatory “cooling-off” period gives you time to review the final terms without pressure.
The CD is the official, final version of your loan’s terms and costs. You should compare it directly to your Loan Estimate to ensure nothing has changed unexpectedly.
What to do with your Closing Disclosure:
- Compare it to the Loan Estimate: Place your initial LE and the CD side-by-side. Verify that the interest rate, loan type, and monthly payments match what you agreed to.
- Question Significant Changes: While some costs can change slightly, others cannot. If you see major, unexpected differences in fees, call your loan officer or real estate agent immediately.
Other Disclosures You Might Encounter
- Your Home Loan Toolkit: An informational booklet from the CFPB you receive when you first apply.
- Affiliated Business Arrangement (AfBA) Disclosure: Informs you if your lender has a business relationship with other companies they refer, such as a specific title or insurance company.
- Initial Escrow Statement: If you have an escrow account for taxes and insurance, this document details the estimated payments for the first year.
Tips for Reviewing Your Disclosures
- Read Carefully: Don’t just skim. The details in these documents define a massive financial commitment.
- Ask Questions: Your loan officer’s job is to clarify anything you don’t understand. There are no dumb questions when it comes to your mortgage.
- Stay Organized: Keep a dedicated folder for your Loan Estimate and all related documents to make the final comparison with the Closing Disclosure simple.
- Use Your Time: The three-day review period for the Closing Disclosure is for your protection. Don’t let anyone pressure you into signing before you are 100% comfortable.
Frequently Asked Questions
Q: Why are the costs on my Closing Disclosure different from my Loan Estimate?
A: According to the CFPB, some costs can change, but others have strict limits. Fees paid to the lender (like origination fees) have zero tolerance and cannot increase. Costs for third-party services you choose from a list provided by the lender have a 10% cumulative tolerance, meaning the total can’t rise by more than 10%. Prepaid expenses like property taxes or homeowners insurance have no tolerance limit and can change.
Q: Do I have to sign these documents?
A: You sign the disclosures primarily to acknowledge you have received them. Signing a Loan Estimate does not obligate you to accept the loan. However, signing the Closing Disclosure is one of the final steps before you become legally bound to the mortgage terms.
Q: What happens if there’s a major error on my Closing Disclosure?
A: If a significant change occurs—such as the lender switching your loan product (e.g., from fixed-rate to adjustable-rate), adding a prepayment penalty, or a large change in the APR—it will trigger a new three-day review period. This may delay your closing but ensures you have time to review the new terms.
Authoritative Source:
- Know Before You Owe mortgage disclosure rule (Consumer Financial Protection Bureau)