Why Am I Signing a Closing Disclosure Before Closing If the Numbers Can Change?

Hey guys, welcome back to another week of Mortgage Matters in Minutes. this is Brent Rasmussen and I am the owner of Mortgage Specialists and today is our 220th episode and one I can't believe we haven't covered in much depth as there usually is a lot of questions on this specific topic from our clients that are a few days to a few weeks before closing and they receive a closing disclosure and they're asked why am I signing this initial closing disclosure if maybe the numbers aren't 100% accurate. So, we're going to talk about that today of what a little bit the process is at the very end. as the government sets a lot of laws and rules to make sure the borrower is protected and to know what kind of numbers to expect from the beginning to the end throughout the transaction. So, let's get into first talking about today what a closing disclosure is. A closing disclosure is the final document that breaks down all of the numbers on a mortgage transaction. Whether that's charges for underwriting, appraisal, credit report, title, taxes, insurance, days of interest. Also might be any credits. It might be any prorations of property taxes. Basically, how all the numbers shake out for your loan, your interest rate, your payments, all the numbers, how they shake out on a real estate loan transaction. So, the closing disclosure is a rare, rarely new form. Sorry, spitting this out in the last, you know, 50 years. We've been looking at that since post 2008. And that the closed disclosure is supposed to be much more simplified for consumers to understand. But I can share with you with all the numbers and it being five pages long, many consumers still don't understand it. But it's kind of just like a bid sheet, cost sheet, estimation sheet, whatever you want to call that. And why do we have to give one out that might not be accurate is what our clients ask because they want to know, hey, it's a week before closing. I want to bring in the exact dollar amount for closing. I want to go get my cashier's check or whatever the scenario is. And what has changed is by federal law, lenders must give out an initial closing disclosure 3 days prior to closing. So that's a must. If that doesn't happen, you're not closing on that specific day if that initial closing disclosure is not out three days prior to closing. And what the law says is that we have a little bit of tolerances that APR has to be within an eighth of a percent on a fixed rate loan or a quarter% on an adjustable rate loan within that 3 days. As long as we're within that eighth to a quarter percent, then we're fine. But I know consumers are want to know exact exact numbers and that's usually a challenging aspect if we're looking at days or weeks before closing because a lot of time the balancing for the final sets of numbers with the title company doesn't happen until a day or two or three before closing. So, when you receive that initial closing disclosure, what you're looking for is double-checking numbers off of the original loan estimate, making sure interest rate looks good, loan amount looks good, approximate cash to close is still very close, and seeing if there's any major differences that you weren't expecting or didn't know about. And that's what that initial closing disclosure is for. It's not supposed to be for any kind of finalization of that real estate transaction because again, just before closing, you're going to get the final closing disclosure that's going to have all the numbers balanced out with HOA dues, taxes, insurance, title fees, recording fees. There's a lot of different things that are outside of the lender's control of charges that are needed to be plugged in on that closing disclosure. So, you citing the initial closing disclosure doesn't obligate you to do that loan. It just gives you another estimate along the way before you show up at closing knowing what the final numbers are in regards to that. So, some people ask, well, can these numbers change indefinitely? Well, yes, they can. But do they? No, because in order to still meet that closing date, we have to disclose the correct APR or APR within an eighth of percent 3 days prior to closing. So, if the numbers change drastically, that 8% APR may be wrong, we have to redisclose and wait three more business days. That generally never ever happens because the lender is going to know what goes into the APR. And I can tell you over the last, you know, 10 plus years of doing closing disclosures, we haven't had any problems with missing a closing date due to the three days. But could something majorly change like the client decides to buy down interest rates, you know, change the amount of points they pay, some other major differences, adding a prepayment penalty, changing the loan product. If any of those things happen, we have to restart over that time clock of 3 days. We understand clients want the numbers as soon as possible. We try for that. That's our goal. We also tell clients we work to get the loan finished a week before closing so we have time to balance out these final numbers. But many of our clients ask, "Why am I signing this initial closing disclosure?" All you're signing and agreeing to is you've received a copy of the numbers. It doesn't make you obligated to them. Your loan is not based upon those initial numbers. But once you get to consummation, which is what is called closing, and you sign all those final forms, those are the binding numbers. You'll sign a final closing disclosure, a promissory note, a deed of trust, escrow initial disclosure, and many other forms. Those are the ones that make the loan binding, not the maybe loan estimate, not the initial loan disclosure, not all the initial closing disclosures. There's lots of different documents along the way. And that's where we're here to help is explain to you what you're signing, what you're agreeing to, why is it being sent to you, because the laws are there to protect you, the consumer, throughout the transaction. I know this video got quite a bit more in depth, and it might not be as easy if you're not involved in the process itself, but if you're looking to find out more about what's on the closing disclosure, when you receive one, what's obligated per trade law, we would have loved to explain any of those things to you as well. We're just a phone call away at 4029915153 or you can check us out on our website at mtg-specialists.com and hope to see you here next time for another mortgage matters in minutes to help educate anything you need in regards to the mortgage world. Have a great rest of your week. Mortgage specialists. Driven. Trusted. Reliable.