There seems to be no shortage of mortgage applicants learning that the initial closing cost estimate provided by the lender was inaccurate.  For those that don’t know, anytime you purchase a home with a mortgage you must pay settlement costs (i.e. fees for loan origination, attorneys, underwriting, title changes, inspection, insurance & more).  Unfortunately, the Good Faith Estimate provided by the lender after you applied for the loan can be significantly different from the the actual cost at closing.    So, what can you do to get a better estimate?

Cross-Reference Your Lender
The federal government is working on new laws to better protect predatory lending behaviors but the mortgage applicant still must do their own homework.  It starts with shopping around and comparing the Good Faith Estimate provided by the lender you would like to use with that of 2 or 3 other lenders.   If there is a significant disparity in estimates, then request an explanation from the lender to determine if you would like to move forward.  In addition, don’t just compare the total closing cost estimate – review the detail costs behind each estimate.  The highest ticket items are usually the loan origination fee (~1% of loan amount), the “points” to reduce the overall loan interest rate and finally the funds put into escrow for property taxes and insurance.  Please note that property taxes will be vary city and state but you can still do the math yourself to double check the lender.

Too Good To Be True
Some lenders blatantly provide low Good Faith Estimates to persuade the buyer to move forward with the mortgage.  Then, at closing when the actual cost is known, it’s too much of a headache for the buyer to back out.  So, if the estimate sounds too good to be true then it probably is.  Generally speaking, closing costs run about 3% to 5% of the loan amount.  In simple terms, this means that if you are applying for a $300,000 loan, then a 5% closing cost estimate is equivalent to $15,000.  A closing cost estimate in the 1% to 2% range should definitely start to raise a red flag.

More Mortgage Finance Questions?
If so, our Finance Experts are happy to help answer all of your mortgage finance questions.

Related Articles
->Getting out of a Mortgage with your Now Ex
->Property Tax Reassessment Questions
->The Homebuyer Tax Credit Extension is For Paperwork
->Selecting the Right DEBT to Pay Off!
->A Greener Home Also Comes With Less Taxes
->Spring is Here! Let’s Break Down the Home Buyer Tax Credit
->Whoa…No Estate Tax in 2010? What Should I Do?