When you're knee-deep in the process of buying a home, the paperwork can feel overwhelming. Among the stack of documents you’ll encounter are the Closing Disclosure and the ALTA Settlement Statement. Understanding the differences between these two key documents can help demystify the closing process and give you more confidence as you move toward owning your new home. Let’s break down what each document is, what information it contains, and why they are both crucial in a residential real estate transaction.

What is a Closing Disclosure?

The Closing Disclosure (CD) is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs). The lender is required to give you the Closing Disclosure at least three business days before you close on your loan. This three-day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate you received when you first applied for your mortgage.

Key Components of the Closing Disclosure:

1. Loan Terms: This section outlines the loan amount, interest rate, and the projected monthly principal and interest payment. It also details whether the loan includes features such as a prepayment penalty or balloon payment.

2. Projected Payments: This breakdown shows how your monthly payment may change over time, particularly if you have an adjustable-rate mortgage (ARM). It includes principal and interest, mortgage insurance, and estimated escrow amounts for property taxes and homeowner’s insurance.

3. Costs at Closing: Here you’ll find a summary of the total closing costs and the total amount of cash you’ll need to bring to the closing table.

4. Loan Costs: This includes all the fees directly associated with your loan, such as origination charges, appraisal fees, credit report fees, and other lender fees.

5. Other Costs: These are additional costs such as taxes, government fees, pre-paid items (like homeowner’s insurance), initial escrow payments, and other related expenses.

6. Calculating Cash to Close: This section helps you understand how much money you’ll need to finalize your purchase, including down payment, closing costs, and any adjustments due to prepaid or post-settlement items.

7. Loan Disclosures and Contact Information: Important information about your loan, such as the lender’s policies on late payments, partial payments, and negative amortization. It also includes contact details for your lender and settlement agent.

What is an ALTA Settlement Statement?

The ALTA (American Land Title Association) Settlement Statement is a standardized form that itemizes all the fees and charges that both the buyer and seller will incur during the settlement process of a real estate transaction. The ALTA statement is used primarily to ensure that the financial aspects of the closing process are handled correctly and transparently. While it is similar to the Closing Disclosure, the ALTA Settlement Statement provides a more detailed breakdown and is used more for reconciliation between the parties involved in the transaction.

Key Components of the ALTA Settlement Statement:

1. Summary of Borrower’s and Seller’s Transactions: This part of the form provides a summary of the funds the borrower (buyer) and seller are responsible for. It shows the purchase price, loan amounts, and adjustments for items such as taxes and utilities.

2. Detail of Loan Costs and Other Costs: This section mirrors the Closing Disclosure in listing all the various fees and charges related to the loan and other costs, but it provides more granular detail. This can include breakdowns of title insurance fees, inspection fees, survey fees, and more.

3. Payoffs and Payments: This part details any payments made at closing, such as payoffs for existing mortgages, real estate commissions, and other fees paid to third parties.

4. Adjustments for Items Paid by Seller in Advance: This section includes any adjustments for items that the seller has prepaid, like property taxes or homeowner’s association dues. These costs are prorated so that both the buyer and seller pay their fair share.

5. Miscellaneous: Any other fees or credits not covered in other sections are included here. This could involve anything from transfer taxes to various recording fees.

Key Differences Between Closing Disclosure and ALTA Settlement Statement

1. Purpose and Audience: The Closing Disclosure is primarily for the buyer, summarizing the final loan terms and costs, while the ALTA Settlement Statement is for both the buyer and the seller, detailing all the financial aspects of the transaction.

2. Regulatory Requirement: The Closing Disclosure is a regulatory requirement under the TILA-RESPA Integrated Disclosure (TRID) rule, which was implemented by the Consumer Financial Protection Bureau (CFPB). In contrast, the ALTA Settlement Statement is not a regulatory requirement but a standardized form widely used in the real estate industry to ensure accuracy and transparency.

3. Level of Detail: The ALTA Settlement Statement typically offers a more detailed breakdown of costs and fees compared to the Closing Disclosure. This is because the ALTA form is designed to itemize all transaction costs, including those that are paid outside of closing (POC).

4. Timing: The Closing Disclosure must be provided to the buyer at least three business days before closing. The ALTA Settlement Statement is usually provided at the closing or shortly before, as it includes the most up-to-date and finalized financial details.

Why Both Documents Matter

Both the Closing Disclosure and the ALTA Settlement Statement are crucial for ensuring that all parties have a clear understanding of the financial transactions taking place. The Closing Disclosure ensures that borrowers are fully aware of their loan terms and costs, giving them a final opportunity to review and ask questions before closing. The ALTA Settlement Statement ensures that both buyers and sellers have a detailed and accurate account of all the financial aspects of the transaction, promoting transparency and reducing the potential for disputes.

In conclusion, while the Closing Disclosure and the ALTA Settlement Statement serve different purposes, they are both essential in the residential real estate transaction process. The Closing Disclosure focuses on providing borrowers with their final loan terms and costs, while the ALTA Settlement Statement provides a detailed breakdown of all the financial transactions for both buyers and sellers. Understanding these documents can help you navigate the closing process with confidence, ensuring that you are fully aware of all the financial details involved in your home purchase.

After years in advertising and marketing, living and working for companies in Georgia, North Carolina, and China, I decided to acquire my real estate license so I can use my established marketing and communications skills to help others and work for myself.

For many people, buying and/or selling their home is one of the most important and most stressful times of their lives. Having an advocate and an agent who has experienced years of corporate marketing, managing teams through challenging projects with tight deadlines, and negotiating complex deals - will aid in the home buying or selling process.

If you or anyone you know is interested in real estate investment, a personal real estate search, or property management, please reach out to me directly - I would love to provide my services to help find your goal property as soon as possible.

Bo Hardegree, NC Real Estate Broker
Espin Realty
[email protected]
704-748-0958