The New Closing Document?
Before October 3, pre Consumer Financial Protection Bureau (CFPB) regulations, the title company drew up the closing disclosure statement which used to be known as the HUD-1. With the implementation of CFPB, in Arizona, it is now the responsibility of the lender to draw up the closing disclosure and get it to the escrow officer with whom the buyer and seller will “close escrow”. The real estate agent should also be present and explained the closing statement to the clients prior to close of escrow.
Lenders, under CFPB, are now required to get the closing disclosure to the parties three business days prior to the scheduled closing. It is a simpler form that the HUD-1 and spells out the loan amount, the interest rate, the monthly principal and interest and any prepayment penalty .
The projected payments show how the payment is calculated with principal, interest, mortgage insurance and estimated escrow which includes taxes and insurance. Projections are for Years 1-7 when Mortgage interest is required and then from years 8-30 or the life of the loan when mortgage insurance is no longer required. Estimated taxes and insurance are spelled out in a separate box. These are not static costs, they can rise yearly as taxes increased as well as insurance.
Closing costs are estimated and the cash to close is spelled out. The second page is a breakdown of the closing costs detailing all loan costs; loan origination fee, services the borrower did not shop for; and services the borrower shopped for.
Taxes and government fees which include recording fees are spelled out as well as all pre paids which include hazard insurance premium, mortgage insurance, prepaid interest, and tax escrow accounts on a monthly basis. The initial escrow payment at closing will include insurance, mortgage insurance if applicable, and taxes and these are computed in the closing costs needed by the borrower to close escrow. Other fees will include Homeowner’s Association fees, Real Estate commissions with the amount and to whom it is paid, and owner’s title insurance.
The third page includes a calculation of “cash to close” which includes total closing costs, anything paid out of escrow such as an appraisal, any closing costs which are financed, and the down payment, any deposit, the funds for the borrower from the loan, any seller credits or other adjustments, and then the cash to close figure is derived.
The remainder of page three is a summary of all the transactions from the previous pages, and shows the borrower’s transaction as well as the seller’s transaction so the net due seller is calculated. Any deposits, amount of the loan, and seller credits are displayed; adjustments such as taxes or HOA fees, showing as a debit or a credit for the buyer and the seller. Any mortgage payoff is shown on the seller’s side.
Page four are loan disclosures about features of the loan, whether there is a demand feature, if the loan can be assumed, what happens with a late payment, if there is negative amortization, and will the lender accept a partial payment. The escrow or impounds will be spelled out, and the estimated property taxes if the buyer declines an escrow account will be shown.
The last page shows the total amount which will be paid if the buyer holds the property for the length of the loan and makes payments as scheduled. The amount of interest paid during the life of the loan is shown as well as the amount financed. The higher the loan interest rate, the greater the amount of interest paid. The annual percentage rate is shown and is different than the interest rate for the loan. The APR includes all the funds necessary to close escrow. And then the box which will show the total interest rate percentage over the life of the loan will knock your socks off! It is the total amount of interest paid over the loan term as a percentage of the loan amount.
Contact information for the lender, the mortgage broker, the real estate broker for the buyers and seller and the settlement agent are listed with name, address, identification number, state license number, contact person and the contact identification and state license number, e mail address and phone number.
To view this form: http://files.consumerfinance.gov/f/201311_cfpb_kbyo_closing-disclosure.pdf
Tags: Consumer Education, Financing