What is a Closing Disclosure Form?
Effective October 3, 2015, the Closing Disclosure Form (CDF) is the new form used by settlement agents to disclose to the borrower the actual terms and costs of the transaction in relation to the estimated terms and costs outlined on the Loan Estimate Form. The CDF combines and replaces the existing HUD-1 and final TIL (Truth In Lending) disclosure, and therefore not only breaks down all charges associated with the transaction, but also outlines the terms of the loan clearly for the borrower.
When is the Closing Disclosure Form used?
The TILA-RESPA rule (the rule finalized by the CFPB with new, integrated mortgage disclosures Under the Truth In Lending Act and the Real Estate Settlement Procedures Act) and accompanying forms apply to most closed-end consumer credit transactions secured by real property. They do not apply to loans made by a person or entity that is not considered a creditor or to the following types of loans:
- Home Equity Lines of Credit (HELOC’s)
- Reverse Mortgages
- Loans secured by a mobile home or dwelling that is not attached to real property
When is the Closing Disclosure Form Distributed?
The TILA-RESPA rule imposes a three-business-day waiting period for the consumer to review the CDF. Therefore, the creditor is responsible for providing the CDF to the consumer no later than three business days before consummation. If the form needs to be corrected for one of the following reasons, a new form must be delivered and a new three-business-day waiting period will begin:
- Change to the loan’s APR (Annual Percentage Rate)
- Change to the loan product
- Addition of a prepayment penalty
If there are any other types of changes to the form, the creditor must ensure that the consumer receives the corrected form at or before consummation.
What Does the Closing Disclosure Form Look Like?
- Page 1 – Discloses general information related to the transaction, such as the property address, borrower and seller names, sales price, and loan amount. Also breaks down the loan terms, projected payments and costs at closing.
- Page 2 – Itemizes all Loan Costs and Other Costs, breaking them down into sections for Origination Charges, Services Borrower Did Not Shop For, Services Borrower Did Shop For, Taxes & Government Fees, Prepaids, Escrow Charges, and Other Charges. If the total number of line items exceeds the amount it can accommodate on one page, this will show as pages 2a and 2b.
- Page 3 – Breaks down the Calculating Cash to Close and compares charges to the amounts provided on the Loan Estimate. This also shows the Summaries of Transactions, which is a breakdown of all borrower and seller debits and credits.
- Page 4 – Discloses additional loan information such as escrowed and non-escrowed property costs, late payment charges, information about partial payments, and the Adjustable Payment and Adjustable Interest Rate tables, if applicable.
- Page 5 – Shows loan calculations, such as the finance charge and the APR, as well as any other loan disclosures that are applicable. Also includes Contact Information for the Lender, Mortgage Broker, Real Estate Brokers, and Settlement Agents.