Which One of These Documents Itemizes the Closing Costs and Explains the Terms of
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Mortgage loan closing costs can be confusing. This article explains what you can expect, and which one of these documents itemizes the closing costs.
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What is a loan estimate?
A loan estimate is a three-page document that you receive from a lender after you have indicated your interest in borrowing money to buy a home. The loan estimate spells out the terms of your loan and gives you estimated costs of ownership.
The first page of the loan estimate shows your loan terms and gives you an estimate of what your monthly principal and interest payments will be. It also shows you how much you will owe in upfront costs at closing.
The second page itemizes the closing costs and explains the terms of the loan. It also includes an estimate of how much your monthly escrow payments will be for property taxes and insurance.
The third page gives you an estimate of how much your loan will cost over time, including interest, origination points, private mortgage insurance (PMI), and other fees. It also shows you how much equity you will have in your home after making a certain number of payments.
What is a closing disclosure?
The closing disclosure is a five-page form that provides final details about the mortgage loan you have selected. The closing disclosure replaces the Truth-in-Lending Act disclosure and the Hud-1 Settlement Statement.
You will receive the closing disclosure three business days before your scheduled closing. This gives you time to review the terms of your loan and compare it to your Loan Estimate.
The primary difference between a Loan Estimate and a closing disclosure is that the Closing Disclosure reflects the actual terms of your loan, while the Loan Estimate was an estimate based on the information you provided when you applied for a mortgage.
The other key difference is that the Closing Disclosure includes more detailed information about costs, including a breakdown of all third-party fees. These fees could include appraisal fees, title insurance, or other costs associated with finalizing your loan.
Reviewing your Closing Disclosure before closing is important because it will allow you to identify any changes from your initial Loan Estimate. If there are any changes, ask your lender to explain them. You can also compare the Good Faith Estimate (GFE) you received when you first applied for your mortgage to see if there have been any changes in estimated costs.
Which one itemizes the closing costs and explains the terms of the loan?
The three main documents you will encounter during the home loan process are the Good Faith Estimate (GFE), the Truth-in-Lending Statement (TIL), and the HUD-1 Settlement Statement. Of these, only the HUD-1 itemizes the closing costs and explains the terms of the loan. The GFE gives you an estimate of your loan costs and the TIL discloses the annual percentage rate (APR) of your loan.
