MortgagesCDLetter C

Closing Disclosure (CD)

The final 5-page federal mortgage settlement statement that itemizes the exact final loan terms, closing costs, and Cash to Close, required to be delivered at least 3 business days prior to loan consummation.

Overview & Practical Application

The Closing Disclosure (CD) is the comprehensive 5-page federal accounting statement that finalizes every penny of a residential mortgage transaction. Under the CFPB’s TRID "Know Before You Owe" Rule, the lender must ensure the borrower receives the Closing Disclosure at least 3 full business days before signing final closing documents ("The 3-Day Waiting Period").

This mandatory 3-day review window gives the homebuyer time to compare the final Closing Disclosure side-by-side against their earlier Loan Estimate (LE) to verify that no unauthorized fee increases occurred.

Only three major changes after CD delivery trigger a new 3-business-day waiting period: 1. The disclosed APR increases by more than 0.125% (12.5 bps) on a fixed-rate loan (or 0.25% on an irregular/variable loan). 2. The loan product changes (e.g., switching from a Fixed-Rate Mortgage to an Adjustable-Rate Mortgage). 3. A prepayment penalty is added to the loan.

Mathematical Formula & Calculation

Final Cash to Close = Down Payment + Total Closing Costs & Prepaids - (Earnest Money Deposit + Seller Credits + Lender Credits)

Computes the exact wire transfer or cashier’s check amount the buyer must bring to the settlement table on Page 3 ("Calculating Cash to Close").

Variable Definitions:

  • Down Payment=Purchase price minus base loan principal
  • Total Closing Costs & Prepaids=Sum of Loan Costs (Sections A-C) and Other Costs/Escrow (Sections E-H)
  • Credits=Already-paid Earnest Money Deposit + negotiated Seller Concessions + Lender Credits

Real-World Underwriting Example

Scenario: On a $400,000 purchase with $80,000 down (20%) and $11,500 in closing costs/escrow, the buyer already deposited $10,000 in Earnest Money and negotiated a $4,000 Seller Credit.

Calculation:
Final Cash to Close = $80,000 + $11,500 - ($10,000 + $4,000) = $77,500.

Takeaway: The buyer wires $77,500 to the title/escrow company at closing.

Key Underwriting Takeaways

  • Always compare Page 3 of your Closing Disclosure ("Calculating Cash to Close" table) directly against your Loan Estimate.
  • Keep Page 1 and Page 2 of your Closing Disclosure permanently with your tax records — certain prepaid interest, property taxes, and discount points may be deductible.
  • Verify wire instructions by calling your title company via an independently verified phone number to guard against real estate wire fraud.
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MortgagesLE

TRID Loan Estimate (LE)

A standardized 3-page federal disclosure form mandated by the CFPB that mortgage lenders must deliver within 3 business days of loan application, itemizing interest rates, payments, and binding closing cost tolerances.

📐 Formula
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Mortgages

Closing Costs

The processing, legal, title, appraisal, and governmental fees paid by buyers and sellers at the formal closing of a real estate transaction.

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Mortgages

Escrow

A neutral third-party holding account used to secure funds during real estate transactions and manage property tax and insurance payments.

📊 Diagram
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Mortgages

Title Insurance

An indemnity insurance policy that protects home buyers and mortgage lenders against financial loss resulting from defects in property title.

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