CLOSING COSTS: KNOWING THE DIFFERENCES
Estimating mortgage closing costs should not be a difficult task, but for some loan officers they can be way off the mark. I know because I get questioned quite often from borrowers that had a bad experience. I feel the consumer needs to be aware of this.
When a borrower is first shopping for a mortgage, usually the first questions are, “What are your closing costs” and “What is the interest rate”.
Both of these questions can be very dangerous if the person answering them doesn’t take the time to explain them in depth. Any loan officer can give a rate, especially to entice that person, to get them in the door. The closing costs are another scenario and I would like to explain them below.
Understanding the closing costs:
Down payment – I have listed this because sometimes this is not discussed properly upfront or listed in the total cash required. The down payment should be listed in your total cash required or cash from borrower. True it is not a closing cost, but it can be confused when talking about total costs required.
Lender Closing Fees ; This is a specific sections to where all the lender fees are listed. This is the best way to compare apples to apples because these fees should be set in stone from day one and not changed. All of the other fees outside of the lender fees can change because they are purely just estimates until you are closer to your closing date.
Prepaid Costs – This is the section to where your taxes, homeowner’s insurance, possible mortgage insurance and daily interest are listed. My issue here is that I have seen many loan officers mislead borrowers when it comes to the number of months that need to be escrowed for your property taxes and homeowners insurance. Each state is different. I would rather estimate a little high in the beginning than for the borrower to be hit with more costs at closing because the right amount of escrows was not collected.
3rd Party Fees – This includes title insurance (and all title fees), recording fees, survey (if needed), and transfer fees, (if applicable). Title insurance is regulated but some companies sometimes charge more than they should because of kick backs to the lender.
Conclusion: Keep in mind, by law; a lender has 3 business days to send out a Good Faith Estimate after taking a full application from the borrower which includes 6 important pieces of information. Meanwhile, what you should receive when shopping for a mortgage or when speaking to a loan officer? The new term is “Itemized Fee Worksheet” which is a duplicate of the old Good Faith Estimate. Just because you get this upfront though, doesn’t mean that it is set in stone. The borrower needs to review and compare each section, not just the total number at the bottom. You need to understand why one section might be more than another.