LE - Calculating Cash to Close Section...

Good morning -

I am very confused with the Loan Estimate Form under Section "Calculating Cash to Close" particularly for "Funds to Borrower." As I read section H for the LE, 1026.37(h)(v), I confuse myself more (perhaps lack of experience)...after A, B, and C it states ..."and $0.00 is disclosed under..." The way I am understanding this, a $0.00 is always disclosed under "Funds To Borrower"...even if they are getting cash back...? I feel stupid asking this question...But I am chasing my tail trying to interpret this section. Is there a guru who can break this down for me? Thank you so much in advance!!




(v) Funds for borrower. The amount of funds for the consumer, labeled “Funds for Borrower.” The amount of funds from the consumer disclosed under paragraph (h)(1)(iii)(B) of this section, and of funds for the consumer disclosed under this paragraph (h)(1)(v) of this section, are determined by subtracting the principal amount of the credit extended (excluding any amount disclosed pursuant to paragraph (h)(1)(ii) of this section) from the total amount of all existing debt being satisfied in the transaction (except to the extent the satisfaction of such existing debt is disclosed under paragraph (g) of this section);

(A) If the calculation under this paragraph (h)(1)(v) yields an amount that is a positive number, such amount is disclosed under paragraph (h)(1)(iii)(B) of this section, and $0 is disclosed under this paragraph (h)(1)(v);

(B) If the calculation under this paragraph (h)(1)(v) yields an amount that is a negative number, such amount is disclosed under this paragraph (h)(1)(v) as a negative number, and $0 is disclosed under paragraph (h)(1)(iii)(B) of this section;

(C) If the calculation under this paragraph (h)(1)(v) of this section yields $0, then $0 is disclosed under paragraphs (h)(1)(iii)(B) and paragraph (h)(1)(v) of this section;

This one is throwing me off too on the Alternative form. I am being told that the Estimated Closing Costs Financed (Paid from you Loan Amount)really does not "mean" it is being financed. Well if it isn't financed (which we don't do often) how do I explain this one to the customer and the Lender who has to explain this to the customer?

I have read and reread this section and I am totally confused. I would think this would be $0 if the customer is bringing the funds to the table and would have an amount if it truly is being financed since it says that amount is being paid from their loan amount. So if it is not being paid from their loan amount why does it say that?

Or is this section purely informational and as long as Closing Costs Details is correct showing what the borrower should bring to closing we are ok?

I have searched for a more common explanation of what Calculting Cash to Close is and I find nothing that puts in everyday terms what the Calculating Cash to Close on Page 2 of the LE and CLoD really mean.

Can someone help us understand this in plain English that makes sense?

Let me see if I can give the down and dirty on this and anyone who wants to jump in...please do so.

Closing cost financed is actually (on a sale, for instance) your total loan amount minus your sales price (payments to 3rd parties). Typically that will = $0.

And Brenda, you are correct. I believe it's going to be much worse than attempting to explain "amount financed".

In an example of mine that I'm looking at...I actually financed $$301.00 of the closing costs. Obviously, $0.00 is disclosed in that section. The down payment is lowered by the $301.00 instead. Confusing much? I think so!

I think the terminology could have been much better. Just say what it is, don't give cryptic meanings. Downpayment doesn't mean a downpayment made, it means the amount needed for the purchase after the loan. Similar to closing costs financed. It does not mean what it says.

I agree, but they could have made it make sense. The $301 could have been in the "closing costs financed" and the actual "downpayment" in that section and it would actually MAKE sense! !

Yes, I don't understand why it can't just say what it means. I think the people who designed it have never purchased a home. I went through a long SOX discussion with an external auditor at one time who had never purchased a home and couldn't understand the process.

OK, so this section has nothing to do with financing the closing costs. So how do we show that the closing costs are being rolled in vs not rolled in to the loan amount?

I am testing our software and there is not anything that I can find that will let me show that the closing costs have been rolled in on the LE. Or do we only show that on the CloD side?

Sorry, but this is just not making sense to me as to why Calculating Cash to Close is even on the LE if it is not going to truly represent what it says. I guess I just need to move on as there still is not anything out there that really explains this well.

UGH! Maybe we should tell the CFPB to explain this to all our customers in plain English????

When filled in properly it does accurately reflect cash to close. I don't have my data with me right now but if no one else gives an example before I get back, I will show a calculation.

See if this helps

Closing Costs Line J 10,000
Loan Amount 205,000
Payoffs not in closing costs 200,000 to seller or other third parties
Difference Loan and Payoffs 5,000 Loan exceeds payoffs; available for closing costs so goes in closing costs financed
Closing Costs Financed (5,000) Disclose full 5,000, does not exceed closing costs (this figure cannot exceed Line J)

CASH TO CLOSE CALCULATION
Closing Costs Line J 10,000 Needed to cover closing costs on Line J
Closing Costs Financed (5,000)
Down Payment 0 loan exceeds price so no down payment needed from borrower
Deposit (3,000) amount being held in escrow so show as negative
Funds for borrower 0 always 0 in a purchase
Seller Credit 0
Adjustments/Other Credits 0
Cash to Close 2,000

2nd Example:

Closing Costs Line J 12,000
Loan Amount 210,000
Payoffs not in closing costs 230,000 to seller
Difference Loan and Payoffs (20,000) amount needed for payoff over the loan amount (down payment)
Closing Costs Financed 0 loan does not exceed payoffs; enter 0

CASH TO CLOSE CALCULATION
Closing Costs Line J 12,000 Needed to cover closing costs on Line J
Closing Costs Financed 0
Down Payment 20,000 down payment needed from borrower
Deposit (10,000) amount being held in escrow so show as negative
Funds for borrower 0 always 0 in a purchase
Seller Credit (5,000)
Adjustments/Other Credits (10,000) Gift
Cash to Close 7,000

Found this thread on a search for "funds for borrower" and have another question on this line. The commentary to this section of the regulation states:

"In a purchase transaction (other than a construction loan), the amount disclosed under § 1026.37(h)(1)(v) will be $0, in accordance with § 1026.37(h)(1)(v)(A)."

When completing this section for a construction loan, does the cost of improvements go on the funds for borrower line?

Thank you in advance.

BrendaW..in a nutshell, the financed costs will come out of the down payment on a purchase, increase the net to borrower in a cash out refi, zero out on a net refi....etc.

Here is my question...has anyone run a test yet on a purchase/rehab? There will be money to the borrower. It will be primarily coded 'purchase'. I'm not sure how that is going to fall out.

::need to add this to my to do list::

If the loan is a Refinance then the funds for borrower should indicate a negative number?