In the last six months or so I seem to be encountering home buyers who have no awareness that if they get a loan to buy a home there will be closing costs. Those costs are in addition to the down payment. Closing costs include loan origination fees, the state mortgage registration tax, a pre-paid home owners insurance policy, pre-paid taxes, a closing fee and more. Home buyers can expect to pay about 3% in closing costs. Three percent of the loan amount, not of the purchase price.
Your lender should have gone over all of this with you and maybe he or she did but you forgot . . yet I wonder.
When you meet with a lender please ask for a good faith estimate. Read it very carefully and find out how much cash you will need. You will need cash.
I was at Cafe con Amore recently and eavesdropped on a mortgage broker going over paperwork for a mortgage. By the time he was done, I’m pretty sire the couple he was talking to were shell shocked and confused. Not that the broker did anything wrong; it’s just that there was so much paperwork and so much legalese with so many exceptions that it would take an expert to truly follow.
Remember, the buyers are often first time buyers or have only bought one other time. Brokers and real estate agents do this often. What seems common sense to a specialist is often arcane to the average person.
Good point Paul. My concern is that the lender isn’t even addressing the issue. I hope I am wrong
I see this happening a lot here in South Florida. I just read a post from Brian Brady talking about new good faith estimate requirements for all lenders to have as of January, 2010 that will help clearly explain buyers’ fees and not hide the closing costs until the HUD-1 appears. Here is the link to his article:
http://delmar.typepad.com/brianbrady/2009/09/new-good-faith-estimate-debuts-january-1st-2010-but-why-wait.html
thanks! I did not know about the new law.
Howdy!
I came here to ask about the Pumpkin Decorating contest and saw that Michael graciously suggested my article. A few thoughts:
1- I find it hard to believe that borrowers weren’t furnished a good-faith-estimate of charges. Loans just can’t fund, without properly executed disclosure forms, in this day and age.
2-I find it easy to believe that they signed that good-faith-estimate with no idea what they were reading.
3- I find it easier to believe that loan originators dind’t review that good-faith-estimate, two or three times during the process. Moreover, I find it REALLY easy to believe that the form was intentionally hidden in a stack of disclsoures.
This process is working for me:
1-Borrowers are furnished a GFE and TIL at pre-approval application.
2-At contract acceptance, the GFE and TIL are emailed to the borrowers AND the agent/broker. The borrowers must execute them prior to ordering the appraisal. The agent/broker can and should ask the originator questions about his client.
3-We redisclose the GFE and TIL at conditional loan approval. This is typically 10 days prior to COE/settlement. Again, the agent sees these as well.
4- When ordering loan documents, we disclose an estimated HUD and TIL.
I hope that helps. Now…how abot that pumpkin decorating contest?
Brian – I think part of it is timing, by that I mean they get it too late and some of it is the borrower not knowing what to look for and probably some other factors. I have talked to a few lenders about this and not all lenders get the buyer a good, good faith estimate with enough time so they can scrape up some money of needed and I don’t thing they do a very good job explaining closing costs because if they did I wouldn’t have to explain it to every single buyer the way I do.
OK everyone is bugging me about the contest. Just kill me now. The whine and cheat and what the heck we shall have a contest. I will make a complete announcement on Friday and have a deadline of the following Friday which most people will miss and then become irritated because their very late entry did not get published. . . I did host the very first, and original, virtual pumpkin carving contest and 2009 will be my fourth year in a raw.
As a realtor, I sit with my buyers for a consultation before we ever go out and look. I also provide them with written documentation of the process. You can see the glaze over about halfway through. It’s a lot to absorb! I like Brian’s system in that it reiterates the same information.
Hi Teresa:
Great post on closing costs. Sadly many first time home buyers do not understand all the cost involved in closing a mortgage.
Please everyone, be sure to get a good faith estimate at the beginning of the mortgage process and again just before closing on your loan. Many of the costs can change and this way you will know exactly how much you need at the closing table.
Mortgage Closing Cost
Thanks, Noel. I think successful disclosure is all about redundancy. Remember when you learned subtraction? Your teacher told you to add in reverse, to check your work. That’s the approach we take with disclosure.