Until recently the mortgage settlement process often left many potential homebuyers perplexed, offended and all too often, stuck paying more than they originally anticipated. The cause of this is closing cost and fees that are higher than what the lenders quoted in the original estimates. These significantly higher costs leave these borrowers with two choices, pay the higher costs and fees, or walk away and start searching for another home.
This has been a problem for many years in the mortgage industry. In an effort to prevent last minute closing surprises, the Department of Housing and Urban Development has advised some new rules. These rules took effect January 1st of this year and they aimed at curbing closing surprises and saving homebuyers’ money.
Lenders will now be required to disclose information included in the estimate that could drive up the cost of the loan or payments. For instance, lenders will be required to disclose whether your interest rate will rise or if penalties will be imposed for paying off the loan early.
The goal here is consistency. Lenders will now be required to use a uniform three-page document for good faith estimates PDF. This good faith estimate will be provided by the lender within 72 hours from when the prospective borrower(s) apply for the loan.
These changes will allow borrowers to compare loans from separate lenders and they will know what the actual cost will be. They will be able to shop around for the best rates and fees without the fear of encountering hidden surprises at the settlement table.
Here is the low down on costs that can and can’t change on the good faith estimate. It’s important that borrowers have a good understanding of which costs can and cannot change when they go to the settlement table.
These costs can not change:
1. Origination fees can not change
2. Points can not be changed after an interest rate has been loaded in.
3. Adjusted origination fees can not be changed after interest rates have been loaded in.
4. Transfer fares can not change.
These costs can increase by up to 10% in overall:
1. Services required by the lender.
2. Title services, title insurance for the lender and title insurance for the owner if these services were selected by the lender.
There is no limit to the amount increases for:
1.Services that are required if they were selected.
2. Title services, title insurance for the lender and title insurance for the owner if these services were selected by the borrowers.
3. Daily interest changes have no limit increase.
4. There are no limit increases on homeowner’s insurance.
5. There is no limit on the initial deposit amount for escrow.
In an effort to increase the reliability of lenders, changes have been made to the HUD-1.
The HUD-1 PDF is a document that the lenders are required by law to give to mortgage applicants at least one day before closing. The HUD-1 contains the borrower’s settlement costs. Before these new rules were enacted, borrowers would often discover that the figures on the HUD-1 looked nothing like the figures originally quoted on the good faith estimate.
The new rules that were enacted will make it difficult for lenders to depart from the cost quoted on the good faith estimate. The new HUD-1 document contains a line-by-line comparison to easily identify any changes that have been made to the cost from when the good faith estimate was given.
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That is something buyer’s really need. Closing costs can get outrageous for buyers and surprising them with additional costs can really turn them off to purchasing a house altogether.
This will somehow eliminate foreclosures because borrowers will be updated on their mortgage status. However on the other side if the borrower is not responsible to pay, it would still lead to foreclosures. Let’s hope in the next few years that foreclosure percentage would drop down. Great read.
This is a good thing. I worked for 3 different mortgage companies and the first company I worked with some pretty shady guys. Surprise fees can be a killer.
I bought a brand new home since Jan and got pre approve by the builder recommend lender. The house is finally close to end of construction and I decide to go with another lender. The problem I got stuck now is my loan agent said title company is not giving them a estimate HUD (with estimate cost of transfer tax, HOA, sales tax.),they said these data need to get from title company so they have accurate Good Faith of Estimate to submit to lender. Title company is saying other direction and said Title company need to get Good Faith Estimate before they could do estimate HUD. Who is right? now my loan agent said they cannot put my file to lender cause they cannot calculate GFE, title company said they have nothing to provide. who should give out all these info. transfer tax, sales tax… HOA…etc.. majority of these estimate? loan agent? Builder? Title company? am I got stuck that I have to use the builder loan agent?