Forms and procedures
Types of charges
The H-25 Closing Disclosure form
Forms and procedures
As mentioned earlier, the TILA/RESPA Integrated Disclosures (TRID) rule mandates forms and procedures in the closing process. These are as follows.
- Lenders must give the consumer a copy of the booklet, “Your Home Loan Toolkit” at the time of loan application.
- Lenders must deliver or mail the Loan Estimate (Form H-24) to the consumer no later than the third business day after receiving a loan application. (A “business day” in this context is any day on which the lender’s offices are open for business. An “application” exists when the consumer has given the lender or mortgage broker six pieces of information: name; income; Social Security number; property address; estimated value of property; loan amount sought).
- Lenders must provide the Closing Disclosure (Form H-25) to the consumer at least three business days before consummation of the loan. (A “business day” in this context is any calendar day except a Sunday or the day on which a legal public holiday is observed. “Consummation” refers to the day on which the borrower becomes indebted to the creditor; this may or may not correspond to the day of closing the transaction.)
Creditors are responsible for ensuring that the figures stated in the Loan Estimate are made in good faith and consistent with the best information reasonably available to the creditor at the time they are disclosed.
Good faith is measured by calculating the difference between the estimated charges originally provided in the Loan Estimate and the actual charges paid by or imposed on the consumer in the Closing Disclosure.
Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate it is not in good faith, regardless of whether the creditor later discovers a technical error, miscalculation, or underestimation of a charge, although there are exceptions.
Types of charges
For certain costs or terms, creditors are permitted to charge consumers more than the amount disclosed on the Loan Estimate without any tolerance limitation.
These charges are:
- prepaid interest; property insurance premiums; amounts placed into an escrow, impound, reserve or similar account
- charges for services required by the creditor if the creditor permits the consumer to shop and the consumer selects a third-party service provider not on the creditor’s written list of service providers
- charges paid to third-party service providers for services not required by the creditor (may be paid to affiliates of the creditor)
However, creditors may only charge consumers more than the amount disclosed when the original estimated charge, or lack of an estimated charge for a particular service, was based on the best information reasonably available to the creditor at the time the disclosure was provided.
Charges for third-party services and recording fees paid by or imposed on the consumer are grouped together and subject to a 10% cumulative tolerance (“10% tolerance” charges). This means the creditor may charge the consumer more than the amount disclosed on the Loan Estimate for any of these charges so long as the total sum of the charges added together does not exceed the sum of all such charges disclosed on the Loan Estimate by more than 10%.
For all other charges (“zero tolerance” charges), creditors are not permitted to charge consumers more than the amount disclosed on the Loan Estimate under any circumstances other than changed circumstances that permit a revised Loan Estimate.
If the amounts paid by the consumer at closing exceed the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, the creditor must refund the excess to the consumer no later than 60 calendar days after consummation.
The Integrated Disclosures rule applies to most closed-end consumer mortgages. It does not apply to:
- home equity lines of credit (HELOCs)
- reverse mortgages
- mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land)
- loans made by persons who are not considered “creditors” by virtue of the fact they make five or fewer mortgages in a year.
However, certain types of loans that used to be subject to TILA but not RESPA are now subject to the TILA-RESPA rule’s integrated disclosure requirements, including:
- construction-only loans
- loans secured by vacant land or by 25 or more acres
- credit extended to certain trusts for tax or estate planning
Guides and detailed information about the current TILA-RESPA rule can be found on the Consumer Financial Protection Bureau (CFPB) website at https://www.consumerfinance.gov/policy-compliance/guidance/tila-respa-disclosure-rule/
The H-25 Closing
The H-25 Closing Disclosure form consists of five pages. Pages 1, 4, and 5 vary, depending on the loan type. To illustrate the form, we use a sample disclosure for a 30-year fixed rate loan that is presented on the CFPB website.
Page 1 has four sections: general information, Loan Terms, Projected Payments, and Costs at Closing.
General information. This section has three columns:
- Closing information –issue date, closing date, disbursement date, settlement agent, file number, property address, and sale price
- Transaction information – names and addresses for borrower, seller and lender
- Loan information – loan term, loan purpose, product type, loan type and loan ID number
Loan Terms. This section states the loan amount, interest rate, and monthly principal and interest payment, and indicates whether any of those amounts can increase after closing. It also gives specifics of any prepayment penalty or balloon payment.
Projected Payment. This section displays the borrower’s payment for principal and interest and mortgage insurance, an estimated escrow payment, and the total estimated monthly mortgage payment for years 1-7 and 8-30 of the loan term. It also provides an estimate of monthly tax, insurance, and assessment payments and indicates whether the payments will be held in escrow.
Costs at Closing. The last section of page 1 shows the borrowers’ total closing costs (brought forward from page 2) and the total amount of cash the buyer needs to close (brought forward from page 3).
Page 2 details the closing costs. There are two sections divided into four columns:
- Description of the costs—loan costs and other costs
- Costs paid by the borrower – “at closing” or “before closing”
- Costs paid by the seller – “at closing” or “before closing”
- Costs paid by others (in the example, someone other than buyer or seller pays for the appraisal)
Loan Costs. The first section deals with the loan costs:
- Origination charges, such as points, application fee, and underwriting fee
- Charges for services the borrower did not shop for – items the lender requires, such as appraisals and credit reports
- Services the borrower did shop for – items the borrower orders on his own, such as pest inspections, survey fees, and title insurance
- The total of A, B, and C above
Other Costs. The second section deals with additional transaction-related costs:
- Taxes and other government fees, such as recording fees and transfer taxes
- Prepaid items, such as homeowner’s insurance, mortgage insurance, prepaid interest, and property taxes to be paid before the first scheduled loan payment
- Initial escrow payment at closing – an amount the borrower will pay the lender each month to be held in escrow until due, typically for insurance premiums and tax instalments
- Other costs not covered elsewhere on the disclosure, such as items as association fees, home warranty fees, home inspection fees, real estate commission, and prorated items
- The total of the costs of E, F, G, and H above
- The total borrower-paid closing costs from D + I above. This total is carried to the bottom of page 1 as “Costs at Closing – Closing Costs.”
Page 3 has two sections, one for calculating cash to close, the other for summarizing the transactions of borrower and seller.
Calculating Cash to Close. The first section compares the final costs of the loan with the lender’s original Loan Estimate. This calculation considers costs paid before closing, down payment, deposits, seller credits, adjustments, and other credits. The last line of the calculation is “Cash to close,” the amount the borrower needs to produce at closing.
When an amount has changed, the creditor must indicate where the consumer can find the amounts that have changed on the Loan Estimate. For example, if the Seller Credit amount changed, the creditor can indicate that the consumer should “See Seller Credits in Section L.” When the increase in Total Closing Costs exceeds the legal limits, the creditor must disclose this fact and the dollar amount of the excess in the “Did this change?” column. A statement directing the consumer to the Lender Credit on page 2 must also be included if the creditor owes a credit to the consumer at closing for the excess amount.
Summaries of Transactions. The second section of page 3 is divided into two columns (or subsections), one to summarize the borrower’s transaction and the other for the seller’s transaction. The borrower’s column includes:
- amounts due from the borrower at closing, including the sale price and adjustments for items paid by the seller in advance.
- amounts already paid by or on behalf of the borrower at closing, such as deposit, loan amount, loan assumptions, seller credits, other credits, and adjustments for items unpaid by the seller, such as taxes and assessments.
The calculation at the bottom of the left column subtracts the totals already paid by the borrower (line L) from the total due from the borrower (line K) to derive the Cash to Close due from the borrower at closing. This figure is the same as that at the bottom of page 1 under “Costs at Closing – Cash to Close.”
The seller’s column of the Summaries section includes:
- amounts due to the seller at closing, including the sale price of the property and adjustments for items paid by the seller in advance.
- amounts due from the seller at closing, such as closing costs the seller will pay, payoff of first or second mortgages, seller credit, and adjustments for items unpaid by the seller, such as taxes and assessments.
The calculation at the bottom of the right column subtracts the total due from the seller (line N) from the total due to the seller (line M) to derive the Cash to Seller, which is the amount the seller will receive at closing.
Page 4 provides additional Loan Disclosures:
- Assumption –whether the lender will allow a loan assumption on a future transfer
- Demand feature –whether the lender can require early repayment
- Late payment – the fee the lender will charge for a late payment
- Negative amortization –whether the loan is negatively amortized, which increases loan amount and diminishes the borrower’s equity over the term
- Partial payments –whether the lender accepts partial payments and applies them to the loan
- Security interest –identifies the property securing the loan
- Escrow account – itemizes what is included in the escrow account and states the monthly escrow payment
Page 5 provides additional calculations, disclosures, and contact information:
- Loan Calculations –the total amount of all payments on the loan, the dollar amount of the finance charges over the life of the loan, the amount financed, the annual percentage rate (APR), and the total interest percentage (TIP)
- Other Disclosures –other important information for the borrower, including the right to a copy of the appraisal report and an indication of whether the borrower is protected against liability for the unpaid balance in the event of a foreclosure
- Contact Information –names, addresses, license numbers, contact names, email addresses, and phone numbers for persons involved in the transaction.
- Confirm Receipt –the borrowers’ signatures confirming receipt of the Closing Disclosure document. Signing the document does not indicate acceptance of the loan.
Sample H-25 Closing Disclosure, Page 1
Sample H-25 Closing Disclosure, Page 2
Sample H-25 Closing Disclosure, Page 3
Sample H-25 Closing Disclosure, Page 4
Sample H-25 Closing Disclosure, Page 5