If you are hearing about the Closing Disclosure, you may be in the final stages of your homebuying journey! As you inch closer to closing the deal on your dream home, there’s one critical document you’ll encounter – the Preliminary Closing Disclosure. In this blog, I’ll shed light on this essential document, helping you understand its significance and what to expect.
What Is a Preliminary Closing Disclosure?
The Preliminary Closing Disclosure (PCD), sometimes referred to as the “Initial Closing Disclosure,” is a pivotal document that your mortgage lender is legally required to provide you with at least three business days before your scheduled closing date. It’s part of the Closing Disclosure process, which replaced the old HUD-1 settlement statement and the Truth in Lending Act (TILA) disclosure.
Why Is It Important?
The PCD serves several crucial purposes in the homebuying process:
- Transparency: Just like the Loan Estimate, the PCD aims to promote transparency. It provides a detailed breakdown of all the costs associated with your mortgage and the home purchase, ensuring you are fully aware of what you’re committing to.
- Verification: It allows you to verify that the final loan terms and closing costs match what you agreed upon with your lender. This step helps prevent any last-minute surprises at the closing table.
- Time for Review: The three-day review period gives you ample time to review the document carefully, ask questions, and seek clarifications if needed.
- Compliance: The PCD ensures that your mortgage lender complies with the Consumer Financial Protection Bureau (CFPB) regulations, which are designed to protect borrowers’ interests.
What Information Does It Contain?
The Preliminary Closing Disclosure includes a wealth of information that covers:
- Loan Terms: It outlines the key terms of your loan, including the loan amount, interest rate, monthly payments, and the loan term. Verify that these match what you agreed upon in your original loan application.
- Projected Payments: Here, you’ll find detailed information about your monthly principal and interest payments, as well as estimates for property taxes, homeowners insurance, and mortgage insurance (if applicable).
- Closing Costs: The PCD lists all the closing costs associated with your home purchase. This includes lender fees, title insurance, appraisal charges, and more. Ensure that these costs align with your expectations and any previous estimates you received.
- Cash to Close: This section breaks down the total amount you need to bring to the closing table. It accounts for your down payment, closing costs, and any other adjustments.
- Loan Comparisons: Similar to the Loan Estimate, the PCD includes a comparison section that allows you to see how your loan terms and costs differ from the initial loan estimate and any other estimates you may have received.
What to Look Out For?
As you review your Preliminary Closing Disclosure, pay close attention to these key elements:
- Loan Terms: Ensure that the loan terms, including the interest rate and loan amount, match what you expected.
- Closing Costs: Verify that the closing costs align with your expectations and any previous estimates you received from your lender.
- Cash to Close: Double-check the total amount you need to bring to the closing. Ensure you have the funds readily available.
- Comparisons: Use the comparison section to confirm that the loan terms and costs are consistent with previous estimates and that there are no unexpected changes.
What Happens Next?
After you receive your Preliminary Closing Disclosure, take your time to review it thoroughly. If you have questions or notice any discrepancies, contact your lender immediately for clarification. Remember that this document is not a binding contract; it’s a snapshot of your closing costs and loan terms.
Once you are satisfied with the document and have resolved any outstanding questions, you’ll be one step closer to the exciting day of closing on your new home.
In conclusion, the Preliminary Closing Disclosure is a crucial document that ensures transparency and compliance throughout the homebuying process. By understanding its contents and purpose, you can proceed with confidence toward homeownership.
If you have any further questions or need assistance with any aspect of the closing process, feel free to reach out to me. I’m here to guide you through this final phase of your homebuying journey.