I recently came across a post here where the blogger asked, "how could a buyer get all the way to the closing table without knowing what their closing costs are"? In typical AR fashion, dozens of AR Realtors herded together to throw lenders and their Mortgage Loan Originators (MLO) under the bus by blaming them for not disclosing to the buyer their closing costs. This was just another classic example of how truly ignorant so many Realtors still are about the loan process. This however is a whole other post and not the topic of this particular post.
As for the buyer who made it all the way to the closing table without knowing what their closing costs were? My first thought was that the buyer in that scenario was probably either being less than honest or had a serious case of selective memory and simply blocked out all the numerous disclosures they signed outlining and breaking down all of their closing costs.
After further thought though, I realized (as I so often have in my 8.5yr mortgage career) not all MLO are like me who disclose and explain to my borrowers (as often as needed) their closing costs and funds to close (FTC). Furthermore, not all borrowers are like most of mine who have no problem asking me to explain something to them again when they don't understand it.
On that note, I find it atrocious and irresponsible that some MLO and/or lender allowed their borrower to get all the way to the closing table without understanding what their closing costs were. I also find it truly sad as well as irresponsible that some borrower allowed themselves to get all the way to the closing table without knowing exactly what they were paying for.
While this particular scenario is truly sad and maybe even tragic, nowadays, it is probably more the exception than the rule and not some opportunity to go around bashing all MLO and/or lenders.
Not only are we MLO and lenders bound by law to disclose a borrowers closing costs (several times too) but it is our responsibility to make sure the borrower understands what they are signing. But, it is also a borrower's responsibility to understand what they are signing and if they don't then they need to say so and ask questions - ask a lot of questions if necessary until they fully understand what they are signing!
First and foremost, let me say that no one works for free and that includes mortgage lenders. Every single mortgage loan will have costs and fees associated with it and while some lenders will have you think that there are no costs or fees to their loans, rest assured, there are - all they've done is roll them into the loan. Whether you pay up front at the close of escrow or whether you pay every month for the life of the loan, you, the borrower, will pay for the closing costs associated with your mortgage loan.
Having said that, what I hope to serve in this post is to help educate borrowers and prospective buyers (and who knows maybe even a few Realtors/agents) about the various documents that outline and breakdown the borrowers closing costs - all before they get to the closing table!
Uniform Residential Loan Application (1003): Long before a borrower ever gets into escrow or even looks at a single property (hopefully), they will speak to a lender and/or the lenders MLO about getting pre-approved for a mortgage loan. On pg 3 of the 1003, is a section that outlines all the details of the transaction, including the closing costs and the FTC. Underneath that section is where the borrowers acknowledge and agree to the info on the 1003.
Now a good MLO (because it seems imperative to distinguish between the MLO who explains these details and those that don't) will disclose and explain every single line of the details section to their borrowers and hopefully, the borrowers will understand the details to the transaction that they are agreeing to. If not, this is when borrowers are responsible for asking their MLO/lender questions about anything that they do not understand.
Furthermore, it is the MLO/lenders responsibility to explain the details again and continue explaining it until the borrower is certain they understand what the details of their transaction are going to be, including the closing costs and FTC.
Itemized Fees Worksheet (IFW): Th IFW is something that any good MLO will provide to the buyer in conjunction with their 1003. The IFW breaks down the costs and fees associated with a borrower's loan transaction line by line.
Once again, it is not only an MLO and/or lenders responsibility to provide a breakdown of a borrowers closing costs but it is also the borrower's responsibility to make sure they fully understand what they are expected to pay for and how much they are coming to the table with. If your MLO and/or lender does not provide you with an IFW - ask for it!
HUD Settlement Cost Booklet: In accordance to the Real Estate Settlement Procedures Act (RESPA), lenders and MLO are required to give borrowers this booklet when applying for a mortgage loan.
This 48pg booklet helps borrowers familiarize themselves with the various stages of the loan and home-buying process, including closing costs. It is a serious violation for any lender and/or MLO to not provide you one of these booklets. If you don't get one - ask for it!
Now, having said this, it is not the MLO and/or the lenders responsibility to read this booklet to their borrowers. As responsible adults, it is the borrowers obligation to read this booklet and if they don't understand something, then ask your MLO and/or lender to clarify.
These are just some of the most basic forms of documentation that an MLO and/or lender provides to the borrower regarding closing costs associated with a loan transaction. While I can't speak for all MLO, I actually have at least one (often many more) discussion with my borrowers long before they ever apply for a loan and/or I collect one single piece of documentation from them.
Just yesterday, I received a call from a prospect who had read one of my AR posts regarding a particular loan product. After discussing some of the advantages and benefits of this particular loan product, the next thing I discussed were the fees and costs associated with this particular loan product. But that's just me and that's the way I work.
I hope you stay tuned for Part 2 where I will discuss the Good Faith Estimate (GFE), the Mortgage Loan Disclosure Statement (MDLS) and the Settlement Statement (HUD1) and check out the rest of the ways that a buyers closing costs are disclosed long before they ever get to the closing table.
HOW ARE A BUYER'S CLOSING COSTS DISCLOSED? Let Me Count the Ways! - Part 2
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Donne Knudsen
Realtor® - CalState Realty Services
DRE#: 01364050 / NMLS#: 249822
805.2069123
Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
© 2010 - All Rights Reserved
Thanks for all of the good loan info- it is hard to keep up on these constant changes
It seems really impossible for a buyer not to know what closing costs are going to be. It must mean that they are unfortunate enough to be using people who are totally inadequate.
Betty
This is going to be a great series Donne, I can already tell :)! I always go over a cost sheet with my buyers so they understand what they may have to pay or not pay at the closing table. Generally the lenders that I work with have a short form that explains some of the costs a little more easier than the new loan documentation has. Either way, no one should go to the closing table not understanding their costs, buyer or seller.
I just went threw four days of calls and texts from a seller up in my home state of Michigan, not a buyer, but didn't understand the selling process let alone the settlement statement, etc.
This type of information is so important to buyer's because they really need to understand what their true costs are when they buy a home. One does not go in blind and not know what is expected. They just assume.
I was only dealing with a seller who is a friend up in Michigan, whose agent didn't provide any help or protect nor guide.
She just closed as her agent didn't attend the closing, and did a lot of "oh, by the way, I didn't know". I shared with the seller that it was partly her fault as she didn't ask any questions of the agent who was supposed to represent her.
Same holds true. Buyer and sellers should know because they should have professionals that they hire that understand all avenues of the buying/selling process to guide them.
Great post. Reblogging.
Thanks for the info.It is hard to think that the buyer didn't know what the cc was.I know for fact that all cc are explain through out the process.Some buyers have selective memory, so that could be the case here.
Donne ~ I am sure you will have a lot of followers here. AS A Realtor®, I always tell my buyers that I can give them an "estimate" of what I see the CC will be but the place they need to go is the MLO or lender. They have that thing called the GFE, good faith estimate, that allows the MLO or lender to give an estimate before the buyer even gets very far into the transaction.
I usually am safe to say that our CC's are about 2-3% of the purchase. But there are many variables.
Thanks. I just saw the title of a featured post stating something along the lines of the buyer didn't know about closing cost. Say what.
You have it covered.
I read that post and I hope you noticed I was NOT in the herd. I was sorta freaked out. The law certainly dictates that can't happen. None of the LO or MLO at banks or mortgage companies could/would let it happen. I wanna know where it happened and did someone report the LO or did a buyer ready the GFE and not "get it" I'm sure there are a couple of humans on the planet that could have it explained to them in detail and still not get it, but perhaps they shouldn't be buying a home either.
Oh, if only only only the parties to the transaction all paid attention and actually READ all of the documents, and if only only only they UNDERSTOOD all of the documents and if only only only that asked for clarification for what they didn't understand. Then we'd all be able to rest easier.
We are REQUIRED to provide buyers with estimated closing cost at the time that they make their offer. I wish that we were not required to do so, but since we are, as usual, I'm pretty obsessive about it.
Donne....I JUST had this conversation with a new client this morning. They are just starting the preapproval process & had questions about their closing costs. Unlike Charita, we do not have to provide estimated closing costs to our buyers - but I explained that their loan officer should give them a clearn explanation of closing costs & funds needed to close. And - if they didn't - they needed to find another loan officer (like the one Irecommended! LOL!)
With all of the mandatory disclosures that the borrower receives, there is really no way for them not to know about their costs and cash to close. Everyone has to sign the loan application, so that alone gives a general overview. This was more likely a case of selective memory or simply not paying attention to anything in the most recent weeks leading up to the closing.
Yes, Donne, this is the RIGHT way to do things! And as you pointed out (and I said on the other post), we MLOs also must also talk these details over to ensure they understand. I know your style well enough to bet that one of the first things you check on an applicant is if they have enough cash to close! suggest
Lori - Even we MLO struggle to keep up with the constant changes.
Team Honeycutt - The only way a buyer would not know what their closing costs are is if they were deaf, dumb and blind.
Brenda - I hope you enjoy Part 2, I should have it up this weekend. I couldn't agree more that there is no reason at all for buyers not knowing their closing costs. Buyers are just as responsible for knowing their closing costs as much as MLO are for telling them what they are.
Barb - Yes, it's just as important that sellers know their costs as much as buyers know their costs. I just find it amazing that sellers and buyers are not asking their reps, the people they hired, to explain these things to them.
Henderson - I too think that the buyer in the other bloggers scenario selectively chose what they did and did not want to remember.
Thx for stopping by everyone; I really appreciate it. Have a good night everyone and a wonderful weekend too. :)
Ken - That's a pretty good estimate and some great advice about talking to a lender.
Don - My post was actually inspired by that other post. After reading that post, I was actually irritated enough to write this one. I actually love posts that inspire me to blog my own post.
Tammy - Yeah, there were a lot of Realtors who didn't join in on the bull run over MLO and lenders. Thank you for not bashing your fave MLO and lenders for not being one of those who doesn't know how to serve their borrowers. As for buyers who just don't get it - they're a lot of those. I assure you, I've come across quite a few myself.
Alison - Yeah, it would be great if borrowers always understood everything we told them the first time we told them. However, I actually don't mind explaining things to them until they understand.
Charita - Thats great that you do that. The more the buyer hears it the more it's ingrained in their brain. And this is why I find it so hard to believe that some buyer got to the closing table without knowing what their closing costs were.
Thx for stopping by folks; I really appreciate it. Have a good night folks and a wonderful weekend too. :)
Christine - Excellent advise! It's atrocious that any buyer should have to ask their Realtor what their closing costs are. Where are these peoples MLO and/or lenders?
Rodney - I thought the exact same too! These days, the only way a buyer could get to the closing table without knowing their closing costs is if they were deaf, dumb and blind throughout the entire transaction.
Ed - You know, I thought that NMLS would have weeded out a lot of the hacks but apparently there are still some hacks left. The idea of a buyer getting to the closing table without knowing their closing costs is just atrocious. I blame the buyer as much as the MLO. I personally feel the buyer is the irresponsible one in that scenario. JMHO
Thx for stopping by folks; I really appreciate it. Have a good night everyone and a wonderful weekend too.
Donne, this is a great series and look forward to reading the next one. Suggested!
I love a good series like this and will be reblogging the entire thing. Thanks for the great post.
I find it commendable that your first thought was to put the onus back on the buyer and that you proceed to show and tell the process from beginning to end.
Rebecca - I'm glad you like it. I've just put up Part 2 if you want to catch that one.
Gene - I'm glad you like it and hope it helps the buyers in your market understand how closing costs are disclosed.
Thx for stopping by folks; I really appreciate it. Have a good night and a good weekend too. :)
Donne, you are absolutely right at how so many Realtors don't have a clue as to what they are talking about when it come to the loan process, but yet are ready to believe things like a buyer did not know what their Closing Costs were before they got to the Closing Table. The only way that they could not know is if they were asleep through the several disclosures that point those costs out. But then again all Lenders are evil, and all Buyers are Innocent.
I look forward to reading the rest of the series.
Jill - While I do agree that it is the MLO/lenders responsibility to provide all the necessary disclosures outlining the borrowers closing costs, it is the borrowers responsibility to understand what they're signing. If they don't - then they need to ask their MLO/lender to explain it to them again. Personally, I don't care if I have to explain them 20x, if that's what it takes for my borrowers to "get it" then that's what I'll do.
George - I know, it's so easy to always believe their buyers and always blame us. Some times I don't care - really I don't. But other days, it just annoys the heck out of me how really clueless that some Realtors are about the loan process and really seasoned ones too. It's kind of shocking too.
Thx for stopping by folks; I appreciate it. Have a good night and a great weekend too. :)
Very informative series. Cute title too, "count" the ways. LOL
And the HUD booklet . . . page 6:
"It is your responsibility to search for an agent who will represent your interests in the real estate transaction. If you want someone to represent only your interests, consider hiring an "exclusive buyer's agent," who will be working for you. "
YES -- consider an "exclusive buyers agent" !!! :-)
Carla - Yeah, there's a lot of really great advice and suggestions in that booklet. Thx for stopping by; I really appreciate it. Have a great week. :)