The Closing Disclosure - What is it?

The Closing Disclosure Explained: 5 Fees Buyers Often Miss

The 3-Day Rule: Your Last Line of Defense

The Closing Disclosure (CD) is a required five-page document that details your final loan terms, closing costs, and cash-to-close. Federal law gives you the right to receive this CD at least three business days before you sign your closing documents. This “3-day rule” means you get time to read, ask questions, and spot errors before the deal is irreversible. If significant terms change after you receive your CD—such as a new APR or major loan modification—the lender must reissue the document and reset the 3-day period.

The Goal: Compare Your CD to Your Loan Estimate (LE)

Use your initial Loan Estimate (LE) as a “baseline” and double-check it against your Closing Disclosure.

• “Zero tolerance” items like lender fees (origination, application, processing, underwriting) must match exactly.

• “10% tolerance” fees, including most title and escrow costs, can’t increase by more than 10% total.

• “No tolerance” fees, such as government recording, can change by any amount, but large jumps are rare.

Flag anything that doesn’t align, especially core lender fees or unexpected new charges.

The 5 Fees Buyers Often Miss or Misunderstand

1. Property Tax Prorations
   Property taxes are split between the buyer and seller so each pays only for the days they own the home. If the seller has prepaid taxes, the buyer must reimburse them, which can add thousands to your cash-to-close. Check the CD for a “tax proration” debit under your totals and make sure it matches what you expect.

2. Owner’s Title Insurance Premium
   Owner’s title insurance is a one-time fee that protects the buyer’s ownership rights. In many California transactions, the seller traditionally pays, but not always. Double-check who is paying for both owner’s and lender’s title policies; buyers sometimes get surprised with extra title costs.

3. Per Diem (Daily) Interest
   Lenders collect interest from your closing date through the end of that month, so your first mortgage payment aligns with the following month’s cycle. If you close late in the month, this amount is small; if you close early, it can be a chunkier up-front cost.

4. HOA Certification and Transfer Fees
   For homes or condos in an HOA, these items cover the cost to transfer ownership, update records, and verify fee balances. These can range from minor admin fees to several hundred dollars, especially in larger LA communities.

5. Homeowners Insurance Prepayment
   Most lenders require buyers to pay the first year’s premium at closing, plus an “escrow cushion” of two to four months. This is in addition to your usual monthly payments and helps prevent missed payments from the escrow account.

What to Do If You Spot an Error

If you see a mistake or unfamiliar charge on your Closing Disclosure:

• Do not sign your final paperwork until it’s resolved.

• Contact both your loan officer and your real estate agent immediately.

• The CD must be corrected and resent, which could trigger a new 3-day review period.

Always take advantage of the 3-day window—mistakes and surprises can cost you thousands, but you have the legal right to review and ask for corrections.