Purchasing a home involves many steps, and the reconciliation of your Closing Disclosure (CD) is a crucial final check before closing. This process compares your initial Loan Estimate (LE)—your early cost prediction—with the final Closing Disclosure, which lists your actual loan costs. By reviewing these documents side by side, you ensure the final charges align with what you were originally told and comply with federal regulations.
Before 2015, homebuyers received the Good Faith Estimate and the HUD-1 Settlement Statement. These forms often caused confusion and surprise fees. The Consumer Financial Protection Bureau (CFPB) introduced the TILA-RESPA Integrated Disclosure (TRID) rule, mandating the use of the Loan Estimate and Closing Disclosure forms to improve transparency and protect consumers.
The reconciliation process involves focusing on the “Calculating Cash to Close” section of the Closing Disclosure, where costs are grouped into three tolerance categories established by the CFPB:
- Zero Tolerance (No Increase Allowed): Fees like lender origination, transfer taxes, and certain services the lender requires without choice cannot go up from the LE to the CD; the lender must cover any overages.
- 10% Cumulative Tolerance: Includes recording fees and third-party service fees where you could shop around, but chose from the lender’s list. The combined total of these fees cannot increase by more than 10%.
- Unlimited Tolerance: Costs such as prepaid interest, homeowners insurance, escrow deposits, and any services you selected independently can change by any amount.
You have a legal right to receive your Closing Disclosure at least three full business days before closing. Use this time to carefully review and compare it with your Loan Estimate. Pay close attention to major items like loan amount, interest rate, and monthly payments. If you spot errors or fees exceeding tolerance limits, contact your lender immediately to resolve discrepancies.
Understanding the reconciliation process helps you avoid last-minute surprises and ensures you are fully informed before finalizing your mortgage. For more about your Loan Estimate and Closing Disclosure, see Loan Estimate and Closing Disclosure.
References:
- CFPB, TILA-RESPA Integrated Disclosure (TRID) Rule: https://www.consumerfinance.gov/policy-compliance/rulemaking/regulations/1024/
- Consumer Financial Protection Bureau, What is a Closing Disclosure? https://www.consumerfinance.gov/ask-cfpb/what-is-a-closing-disclosure-en-166/
- IRS Publication 530: Tax Information for Homeowners (for tax-related closing cost considerations)
This entry ensures clarity, accuracy, and actionable information for homebuyers navigating closing disclosures.