If you last bought or sold your property more than 8 months ago, you may be surprised the next time you’re at a real estate closing. That’s because last October, the longstanding HUD-1 closing form was replaced by something called a Closing Disclosure, or CD.
The new form is part of a larger revamp brought about by the Federal government’s overhaul of the way mortgages are processed and disclosed to borrowers. The CD has all the same information as the old HUD, but it’s presented in a new way, and, importantly, much additional information is provided. Although the new form may seem confusing to people used to the old one, there actually are some good changes.
Here are some of the biggest differences:
- You’ll get the closing disclosure no less than 3 days before the closing. Before, banks typically released figures to the closing agent at the last minute, so buyers and sellers often didn’t see the HUD until just before closing. Now, the law requires each party to get and sign a CD at least 3 days ahead of time. While this is a good thing in most cases (you have time to go over the form with your attorney/closing agent), one kink is that some changes that are made trigger an additional 3-day period. So if you found, say, during your walk-through that the air conditioner is shot and the seller agrees to give you money for a new one, you may not be able to close later that day.
- Terms of the loan are spelled out clearly. Unlike the 2-page HUD, the CD is a 5-page form, with many of the new lines filled with specific information about your loan, such as the exact monthly principal and interest, and whether there’s a prepayment penalty or balloon payment expected. This information must match the numbers given to you by your bank earlier in the loan process.
- Costs are itemized in detail. Under older versions of the HUD, banks sometimes lumped various fees together. Now, they must itemize each one in detail, including how much they’re charging for underwriting, and even for determining whether you’re in a flood zone. Costs from other vendors are also listed one-by-one, ranging from the charge to record your deed to what you’re paying for a home inspection.
- Who pays what is a bit confusing. One complaint of the new form is which costs are to be paid by the seller and which by the buyer isn’t always straightforward. In some cases a payment by the seller that’s credited to the buyer looks like a charge the buyer must pay. Talk to your attorney/closing agent if your payments seem unclear.
- The last page provides other helpful information. In addition to summarizing your loan (including the total amount you’ll pay in interest over its life), other useful information is listed, such as whether, in the unfortunate event of a foreclosure, your state protects you from liability for any unpaid balance. Finally, the page handily lists the names and contact information for each professional involved in the deal, from the lender and mortgage broker to the Realtor and closing agent, so you can more easily get your questions answered.
If you’re buying or selling in South Florida and want a free consultation with an attorney, contact us at The Law Office of Gary M. Landau, P.A.