A new law limits the amount that home buyers can be charged for the
expenses involved in getting a loan, but some prospective borrowers don't know
how the complicated guidelines work.
Dear Mr. Meyers: We agreed to
buy a house, and our lender provided a statement showing
our loan's estimated closing costs. The estimate for the
cost of a title search and title insurance policy from a
company recommended by the lender totaled $1,127, but
we decided to use a differnet company because we thought
it would save us money. When the deal closed last week, the
final settlement statement showed that the company we chose
charged us $1,640 for its services - more than 40 percent over
the bank's estimates. Isn't the illegal, because the new law that
you wrote about a few months ago says that the actual
closing costs cannot be higher than 10 percent of the
lender's original estimates?
ANSWER: I'm afraid that you misread
that earlier column.
Under a new federal law that took effect Jan. 1, all lenders
are now required to provide prospective borrowers with
a standardized, three-page "good faith estimate" of their
closing costs. The law essentially divides these costs into
three seperate categories: Those that cannot change from
the bank's estimates, those that can rise by as much as
10 percent, and those that can change without limit.
Fees that cannot change from the good faith estimate, commonly
called a GFE, include the lender's origination and underwriting
charges, as well as the pre-paid "points" the borrower might have to pay based on
the agreed upon loan amount and interest rate.
Fees that can rise by up to 10 percent at settlement include services that
are either required or recommended by the lender. Had you used the title
company that the bank suggested, the cost of the title search and title policy
could not have increased by more than 10 percent of the original $1,127 estimate.
But since you instead decided to pick an "outside" vendor for the search and
title policy, the 10 percent limit didn't apply.
The fees charged by other service providers that are chosen by the borrower and
not recommended by the lender are also subject to unlimited increases. They include
charges for homeowners or flood insurance, fees for a pest inspection or needed
pest-control work and the cost of daily interest charges that the bank may charge while
the transaction is waiting to close.
For the lowest title insurance rates and real estate settlement services in the Philadelphia and Lehigh Valley PA region,
contact MAIN STREET ABSTRACT COMPANY! We strive to make each
and every settlement as efficient and stress-free as possible.
Please feel free to call or email us with any questions.