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Clearly, buying a home should be an uplifting experience, but all too often, the closing process has left borrowers confused, angry and paying more than originally anticipated. The same goes for refinances; sure it may not be “uplifting,” but it surely shouldn’t be surprising either.

The reason? Oftentimes, lenders/brokers would exploit the old disclosure rules and borrowers would find that their closing costs and fees are significantly higher than the lender’s/broker’s original estimates. In these situations, borrowers are faced with two not-so-great choices: pay-up or throw in the towel and start searching for another house.

Now, after many years of wrestling with different ideas, the Department of Housing and Urban Development has adopted rules designed to prevent these last-minute closing situations. The rules, which took effect 1/1/2010, will reduce closing shocks and, in theory, save home buyers money.

The biggest change involves the good faith estimate – or GFE – the form lenders give borrowers after they apply for a mortgage. The GFE isn’t new, but in the past, the document didn’t seem to be particularly helpful to borrowers. Here’s what has changed:


Lenders are now required to use a standard three-page document when they give prospective borrowers a GFE.

Lenders also are required to provide the document within 72 hours after prospective borrowers apply for a loan against a specific property.


Many borrowers who bought homes during the housing boom later discovered that their loans contained hidden clauses that made their mortgages unaffordable. The new GFE requires lenders to disclose features that could drive up costs. i.e. the document requires lenders to disclose whether your interest can change — as would be the case with an adjustable-rate mortgage — and if so, by how much. Other items include balloon payments and pre-payment penalties.


Some lenders offer borrowers a lower rate in exchange for higher costs — or vice versa. A new section in the GFE helps borrowers compare how different interest rates and closing charges will affect monthly payments.


Lenders are required by law to give applicants a copy of their settlement costs, known as a HUD-1, at least one day before closing – this isn’t new. In the past, however, many borrowers discovered that the costs shown on the HUD-1 bore little connection to those provided in the GFE.

The new rules make it much more difficult for lenders to depart from their GFEs. The new HUD-1 includes a line-by-line comparison to the GFE, making it easy to identify any cost changes.

Furthermore, lenders are prohibited from increasing the costs they control, such as origination and underwriting fees. Fees for third-party services, such as appraisals and title insurance, can increase no more than 10% from those provided in the GFE, as long as the borrowers use providers selected by the lender. The limit doesn’t apply if borrowers select their own third-party providers.

Other costs that aren’t subject to the 10% limit include the initial deposit for the borrower’s escrow account, daily interest charges and homeowner’s insurance.

If you want to explore your options relative to a home loan, please contact me today!

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