Home loan closing costs can be a shock

Lending industry tries to tighten rules to eliminate last-minute surprises

Buying a house or taking out a home equity loan is a stressful process for most buyers. It’s expensive, it’s time consuming, and the buyer is making a decision that could affect his or her life for the next 30 years. Most buyers understandably want to know as much as they can about the process and exactly how much it will cost them. And for the most part, lenders comply. There is one area that is still a big problem throughout the industry, though and that involves closing costs. Most lenders will provide a “good faith estimate” as to how much the buyer will have to pay at closing, but it’s just that - a guess. More often than most lenders would like to admit, the costs come in substantially higher than the estimates, and the burden of whether to pay them, fight them, or simply walk away falls upon the buyer. A couple of lending industry brokerage groups hope to change that, as taking some of the shock out of the buying process would be better for everyone involved.

Sometimes the increases that show up at closing are due to honest mistakes, such as an error in estimating title company charges. On other occasions, the inflation at closing comes as a result of a lender simply tacking on profit, knowing that the buyer will feel little choice but to pay it. The National Association of Mortgage Brokers would like to change that, and the association is proposing rules that would allow buyers to sue their lender or broker if the closing costs exceeded the estimate by more than ten percent. Another group, the National Association of Independent Mortgage Bankers, wants to make the estimate a guarantee. In short, if the fees go over the estimate, the buyer will not have to pay the extra amount.

The department of Housing and Urban Development has been urging lenders to tighten their policies regarding closing costs in the wake of thousands of complaints from consumers regarding unscrupulous lending tactics that pressure the buyers into paying extra at closing. By the time closing comes, buyers are ready to move into their home, not fight with the lender over a few hundred or a couple of thousand dollars. Lenders know this, and the extra money is often simply pure profit. By waiting until the last minute to disclose this information, lenders know that the amount is unlikely to be disputed.

It will take some time for these lending associations to work out their guidelines, but in the meantime, buyers will have to look out for themselves at closing time. When that estimate is given to you, ask the lender how often that estimate is accurate. Ask the lender what will happen if the estimate goes over, or if they are willing to guarantee that estimate.

They may or may not be willing to do so, but it will put them on guard that you, the buyer, are not willing to have any extra profit thrust upon you at the last minute.