What Is a Closing Statement?

Closing Statements Explained in Less Than 5 Minutes

A couple signs a mortgage loan agreement
•••

skynesher / Getty Images

A closing statement is a written record of the terms of a loan or other financial transaction, disclosing the final terms of an agreement. It is most commonly used when a home buyer takes part in a mortgage loan transaction. With this document, you know exactly what you’re agreeing to pay over time.

Knowing you should receive a closing statement of some kind when you get a loan can help ensure you are getting the loan product you expected at the rates and terms you chose. Mortgage transactions, with a complex variety of fees, insurance, and down payments, particularly need closing disclosures to make sure both parties are fully up to date on the transaction. Learn more here about how closing statements work.

Definition and Examples of Closing Statements

A closing statement, sometimes called a settlement statement or closing disclosure, ensures the seller and buyer both know exactly what they are agreeing to pay and for how long. This document is standardized for different kinds of loans, but the closing statement should arrive early enough for you to review it in-depth before proceeding to close on the loan.

A lender is required to give you the closing statement at least three business days before you close on a mortgage loan. This provides enough time to compare terms and costs, and ask any questions you may have.

Mortgage loan transactions are where individuals will most commonly see a closing statement. If you’ve applied for and been approved for a mortgage loan, you’ll receive a summary document containing key details of the agreement about a week before the closing date. This will be the most up-to-date picture of your loan’s term, interest rate, and any fees or penalties included in the mortgage loan product. You’ll review it and, ideally, ask and resolve any questions before closing.

Around the same time, the seller of the home will receive a similar disclosure. It will outline what they’ll be paid at closing, as well as any relevant fees on their end and commissions that will be deducted from the sale price. These disclosures on both sides prevent surprises the day of closing, allowing an important and large financial transaction to proceed without hiccups.

  • Alternate names: settlement statement, closing disclosure, credit agreement

How Does a Closing Statement Work?

The closing statement for a mortgage should mostly be a review of another document you received earlier in the process—the loan estimate. Within three days of applying for your loan, the loan estimate should arrive and outline the term, interest rates, and fees of the loan.

While some elements could change by the time closing occurs, in most cases, the terms listed in the loan estimate and the terms listed on the closing statement should be similar. As mentioned, the closing disclosure should arrive at least three days before you close on the loan.

The three-day period lenders have to send you the closing disclosure is part of a wider piece of legislation known colloquially as “Know Before You Owe,” put into place in 2015 by the TILA-RESPA Integrated Disclosure rule.

Typically, if you’re applying for a mortgage, you’ve allocated specific funds for closing costs, down payment, and any other associated fees. If something changes on the closing disclosure, you may not have sufficient funds prepared, so it’s key to check and make sure your disclosure matches what you’re expecting to pay.

In addition to mortgage loan agreements, you’ll receive some kind of disclosure for any loan you receive. This includes revolving credit loans like HELOCs and personal loans.

What Does the Closing Statement Cover?

While each loan closing statement may have a variety of information on it depending on the loan product, you can often expect to see and verify these items:

  • Correct spelling of the borrower’s name
  • Term of the loan
  • Total loan amount
  • Interest rate
  • Prepayment penalties
  • Expected balloon payments
  • Estimated total monthly payments
  • Taxes, insurance, and assessments that are to be included in the loan payment
  • Closing costs

To verify the numbers and details of your closing statement are accurate, compare them to the latest loan estimate you received. If you notice discrepancies, discuss them with your loan officer to understand why. The Consumer Financial Protection Bureau offers an explainer tool that lets you double-check all necessary information on the closing statement.

Not all of these items may exist for your loan. For example, if you haven’t agreed to a balloon payment, it will not appear on the closing statement.

There may be good reasons why small changes occur between the loan estimate and the closing statement. For instance, interest rates on an offer do change, so they may no longer be able to offer the exact interest rate that was estimated earlier, depending on the loan product you are getting.

Key Takeaways

  • The closing statement or closing disclosure is intended to share the details of a loan right before closing so both the buyer and lender are on the same page.
  • You can receive a closing statement for various types of loans issued, but a mortgage closing statement is the most recognizable and commonly discussed.
  • Verifying the terms of your loan and keeping physical copies of the terms can clear up confusions down the line.