It’s happened to me, and I’m sure it’s happened to you too. The BIG day arrives – Closing Day! We sit at the closing table with stacks of paperwork ready to sign excited to get the keys to our new homes in st augustine then BAM …the shocker. We expected to pay $2,500 in closing cost and now find out it is actually $3,000.
Why did the fees escalate by closing? We received the Good Faith Estimate (GFE) of the fees associated with the mortgage loan from the lender. So we were aware of the costs involved, but the GFE is exactly that, an estimate. And as is most often the case, in any business, estimates change, they usually increase.
January 1, 2010, new federal ruled adopted by the Department of Housing and Urban Development took effect. A new and improved Good Faith Estimate was introduced to avoid those closing table surprises.
From Money Magazine:
The main change is how lenders communicate fee information to borrowers. Under the old system, there was no standardized format. “Fees were communicated in multiple ways, which adds to the confusion when comparing costs,” says Keith Gumbinger, a vice president at HSH Associates, which tracks the mortgage market. Under the new rules, lenders will all be required to use the same form for their Good Faith Estimates – a three-page document issued by HUD.
There are also new rules capping increases in costs that are disclosed on the Good Faith Estimate and guidelines so that fees listed on the initial GFE reflect the actual cost at settlement. “Those fees on the GFE at the beginning of the process will be the same on HUD-1 form [final settlement statement] at the end of the process,” says Gumbinger.
The new GFE guidelines are certainly better than the old ones and will reduce closing costs modestly – but there are still some kinks in the process, namely opportunistic pricing, says Jack Guttentag, professor of finance emeritus at the Wharton School who also operates a web site that offers free mortgage information.
That means that two different borrowers can go to the same lender but get two different estimates. The lender can size up the first one as a sophisticate, the other as a dupe, and charge the latter more than the former – just because he thinks he can get away with it. “There’s no ready way a disclosure statement can prevent that,” Guttentag says.
Prospective buyers should also be aware that while overall costs associated with closing on a home may come down as a result of the new GFE, they might have to pay up down the line in other ways. It will cost lenders to comply with the new regulations: they have to buy new software, print new documents, train loan originators to fill out the new forms properly. “They will be built into fees, so eventually consumers will pay” for these overhead costs, says Gumbinger.
So will the new good faith estimate make borrowers savvier about shopping around for a loan? Some are doubtful. “The forms are still pretty complicated,” says Richard Vetstein, a real estate attorney with Vetstein Law Group in Framingham, Mass. “Even for me – a real estate attorney – it took several hours to go through the forms and all the changes, and figure out what’s going on.”
Here, a summary of the types of charges you can expect to see on your Good Faith Estimate.
1. Fees that cannot change from the original GFE to final settlement. These include the lender’s origination and underwriting charges, and the credit or “points” based on the specific interest rate chosen.
2. Fees that can increase up to 10% at settlement. These include services required and recommended by the lender. If the borrower selects a third-party provider (for title services, title insurance and recording charges) from the lender’s approved list, the fees cannot increase by more than 10% from the upfront estimate to the final.
3. Fees that can change without limit. These include charges from service providers (for title insurance) chosen by the borrower, but not recommended by the lender. This category also includes things like daily interest charges, homeowner’s insurance, as well as flood and pest insurance, if necessary. It encourages borrowers to do their own shopping. “It prevents the worst abuses of price escalation on third-party charges for service providers selected by the lender,” says Guttentag.
Read more: New Rules Help Borrowers at Closing at SmartMoney.comhttp://www.smartmoney.com/personal-finance/real-estate/new-rules-help-borrowers-at-closing/#ixzz0caD9mESx
Marjorie Taylor, Watson Realty Corp. is a licensed Real Estate Broker and community leader representing Homes in St. Augustine. She holds the professional designations of CDPE, CRS, CSP, e-PRO, GRI, TRC and is passionate about helping clients buy and sell Homes in St. Augustine and Homes in St. Augustine Beach, Florida.
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Marjorie@MarjorieTaylor.net