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January 7, 2010

Lenders Held to Good-Faith Estimate

Lenders now have to stand by their initial good-faith estimate that they provide borrowers, according to the Department of Housing and Urban Development (HUD).

Closing costs are given to loan applicants up front, but these good-faith estimates can sometimes change when the loan is finalized. However, as of January 1st, lenders will be forbidden from increasing some charges at the closing table and will be limited to a 10% increase on other fees. If the costs of such services such as title insurance or credit reports turn out to be substantially more than initially indicated on the good-faith estimate, the lender will have to east the difference.

Costs that lenders can’t increase at all include origination charges, discount points (after the interest rate is locked), and transfer taxes. The costs that can’t increase more than 10% are required services selected by the lender, as well as title search and lender’s title insurance (if the lender selects the title company or the borrower chooses a title company suggested by the lender).

Sounds good, right? The twist is that lenders are widely expected to raise fees and overestimate some others to make up for potential increases.

So review your good-faith estimate from the start, and retain a copy of it so you can compare it when you receive your estimated closing statement from the title company. I always request the latter document prior to my clients signing loan documents, so they can review the fees and make sure everything is in line with what they’ve been told. Given this new regulation, it’s more important than ever to keep an eye on closing costs.

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