What is a Closing Information Sheet and Why It Matters

Definition & Meaning of a Closing Information Sheet

A Closing Information Sheet, often referred to as a Closing Disclosure (CD), is a critical document in real estate transactions. This five-page form outlines the final terms of a mortgage, including the loan amount, interest rate, monthly payments, and all associated closing costs. It is provided to both the buyer and seller at least three business days before the closing date, allowing them to compare it with the initial Loan Estimate. This transparency is essential for ensuring both parties fully understand their financial obligations before finalizing the transaction.

Key Elements of the Closing Information Sheet

The Closing Information Sheet includes several key components that detail the financial aspects of the transaction:

• Loan Terms: This section specifies the interest rate, monthly principal and interest payments, and any mortgage insurance requirements.
• Projected Payments: Buyers can see their estimated monthly payments, which include taxes, insurance, and other escrow items.
• Costs at Closing: An itemized list of all fees, such as loan origination fees, appraisal costs, title insurance, and taxes, is provided here.
• Cash to Close: This indicates the total amount of money the buyer needs to bring to the closing table, including any down payment and closing costs.
• Summary of Transactions: This section breaks down all monetary exchanges between the buyer, seller, and lender, ensuring clarity in financial responsibilities.

How to Use the Closing Information Sheet

Using the Closing Information Sheet effectively involves several steps:

• Review Thoroughly: Take time to compare the Closing Disclosure with the initial Loan Estimate to identify any discrepancies or unexpected charges.
• Ask Questions: If anything is unclear, reach out to your lender or real estate agent for clarification before the closing date.
• Prepare Financially: Ensure you have the necessary funds ready for the closing date, as indicated in the Cash to Close section.

How to Obtain the Closing Information Sheet

To obtain a Closing Information Sheet, follow these steps:

• Contact Your Lender: Your mortgage lender is responsible for preparing the Closing Disclosure and must provide it to you.
• Request Early Access: You can ask for a draft version of the Closing Disclosure to review before the mandatory three-day waiting period.
• Check for Accuracy: Ensure all details are correct and reflect your agreement before the closing date.

Who Typically Uses the Closing Information Sheet

The Closing Information Sheet is primarily used by:

• Home Buyers: Individuals purchasing property need to understand their financial commitments.
• Sellers: Those selling property must also be aware of the financial implications of the sale.
• Lenders: Financial institutions that provide the mortgage must prepare and deliver this document.
• Real Estate Agents: Agents assist clients in understanding the details and implications of the Closing Disclosure.

Legal Use of the Closing Information Sheet

The Closing Information Sheet is legally mandated by federal law, specifically the Truth in Lending Act and the Real Estate Settlement Procedures Act. Lenders are required to provide this document at least three business days before the closing date. This legal requirement ensures that buyers and sellers have adequate time to review and understand the terms of their mortgage and the associated costs. Failure to comply with this requirement can result in penalties for lenders and may delay the closing process.

Examples of Using the Closing Information Sheet

Here are practical scenarios illustrating the use of a Closing Information Sheet:

• First-Time Home Buyer: A first-time home buyer reviews their Closing Disclosure, comparing it to the Loan Estimate to ensure there are no unexpected fees, such as higher closing costs or changes in the interest rate.
• Investment Property Sale: A seller of an investment property examines the Closing Information Sheet to confirm the final sale price and ensure all costs, including commissions and taxes, are accurately reflected.

Important Terms Related to the Closing Information Sheet

Understanding key terms associated with the Closing Information Sheet can help clarify its contents:

• Loan Estimate: A preliminary disclosure provided by lenders that outlines the estimated costs of a mortgage.
• Closing Costs: Fees and expenses associated with finalizing a mortgage, including title insurance, appraisal fees, and attorney fees.
• Escrow: A financial arrangement where a third party holds funds until the completion of a transaction.