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STRAIGHT JACKET PLEASE: CLOSING DISCLOSURES, LOAN ESTIMATES AND SETTLEMENT STATEMENTS

DEANA M. DEVEREAUX • January 28, 2021
I HAD to do a blog post on this. This subject is confusing so many borrowers that it is alarming!

Borrowers everywhere are like:

So, let us nail this down for ya’ right NOW.


What is a Closing Disclosure?


A Closing Disclosure, or “CD” is 5 pages that provide all final details about your mortgage loan. By regulation, you must receive the CD at least three business days before you close. It outlines all loan terms, payments, fees and closing costs.


What is a Loan Estimate?


A Loan Estimate, or “LE” was your former “Good Faith Estimate”, or “GFE”. The GFE’s went away and gave birth to the LE. Joy.


The LE is 3 pages that you receive no later than 3 days (by regulation) after you apply for a loan. It outlines your rate, payment, closing costs and other vital estimated loan details.


What is the difference between the CD and the LE?


Remember this: LE = Estimate. CD= Actual.


The LE is the initial estimated outline of your loan costs. Nothing has been locked in for you, yet. If you do not like the terms you see, you do not have to move forward. If you like what you see, then you will advise in moving forward. It is sort of like receiving an insurance quote.


It is your right to initially shop around. Just know, though, that a Lender is only required to honor the LE terms for 10 business days. Furthermore, rates change all the time. A rate you were quoted a week ago could go up or down.


The CD is more of a complete document. You are IN THE LOAN, now, baby. You have already been underwritten, approved, and headed to closing if all else has checked out. It includes your locked-in rate, terms, and other costs. It includes fees that are more concrete, but still are not yet final. We will get into that in a second.


What is a Settlement Statement?


A Settlement Statement is your HUD-1 Form or Closing Statement. This is your Golden Ticket to the Wonka Factory! The Settlement Statement is the reason your CD numbers may still not be completely accurate.


This statement is given to you at closing and it breaks everything down accurately, to the penny. It will have things on it that neither your LE nor CD will have. This is because Escrow is communicating with everyone real-time on accurate costs, fees and payoffs until the loan is funded. The Lender is NOT doing that. The statement from Escrow will itemize all services and fees charged, including appraisal fees, loan origination costs, final payoffs, prepaid taxes, insurance, recording fees, other line items you may be paying off (if refinancing) etc.


If it is NOT on the Settlement Statement, then omg, you had better speak up, because SOMEBODY missed something somewhere!


Are you with me thus far?


Good. Now buckle up.


Are Closing Disclosures always correct?


HECK no.


A Lender can issue their CD to you with the costs they understand at one snapshot in time, but perhaps Escrow just received an UPDATED payoff demand for you on their end.


Well, the Lender did not, so the Lender would not have disclosed that NEW amount on your CD. The figures are going to be inevitably different on the Settlement, then on the CD. Escrow (or Title, if in such a state where Title handles everything) does not automatically send these kinds of changes to the Lender, because they are handling the finals. Why would they? See?


There WILL be differences in the amount of taxes collected, homeowner’s insurance premiums (as those vary by borrower, date, property, expiration/renewal dates and many other factors) prepaid interest, third-party costs and recording fees. The Lender does not control these varying line items. There is no way for them to know these figures ahead of time on the LE, or even the CD. Escrow handles these things on the Settlement Statement.


The Lender’s CD could show you receiving MORE money, or less money than you are going to receive. Please re-read that again. I want you to GRASP THIS. Again, the Lender’s CD is a snapshot in time. Escrow’s statement has more info than the CD. Escrow can even have more info than your actual LOAN DOCS you sign through your notary at closing. Oh yes! Escrow is REAL-TIME. The CD and loan docs are like TIVO. Escrow is like live news. Do we get this?


ESCROW will prepare the final Settlement Statement. Their statement WILL have your correct and final numbers. Escrow rules the roost…and they will compute all finals before any transaction finalizes. However, Escrow and Title are run by humans. There is no magic, here. Sometimes, humans make errors. If you see something wrong, or questionable, ALERT your loan officer and your title/escrow officers ASAP!!!


Borrowers always receive their CD’s before closing and completely LOSE IT.


“What in the Pitchfork Tarnation is THIS?!! This is NOT the cash out you promised me!”


No, it is not, dear…because Escrow has the FINAL NUMBERS. On that Settlement Statement is where you will see your actual cash out. Perhaps you did not make your current payment in lieu of closing, but your mortgage servicer added it onto the payoff. This made the payoff higher. There could be varying reasons. If in doubt about something; ask.


No matter what, folks, after docs and before funding, Escrow will BALANCE with the Lender. They will ensure all numbers match. Your numbers WILL be correct in the transaction at the end. You will receive all the goodness you have coming to you.

Always ask to see a Settlement Statement before closing. Do NOT just depend on the CD, or loan docs either, for accuracy.


YOUR RIGHTS:


You have EVERY RIGHT to ask all the questions you need to. You NEED TO understand what you are signing and to confirm that everything is correct.


If there are inconsistencies and errors in ANYTHING you receive concerning your loan, alert your loan officer YESTERDAY to have things fixed, so there are no surprises when you receive final loan docs to sign.


We are your CREATIVE funders, bringing a combined 30+ years of experience to the table. We know how to satisfy the underwriters…to creatively get your loan approved and approved the RIGHT way.


We also know how to navigate loan challenges and issues very well.


Call us today if you want to take advantage of the historically low rates available!





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