After reading a post here on AR about how a buyer commented to an AR Realtor at the closing table that they didn't know there were closing costs, I was inspired to blog about how incredibly unlikely this probably was. In Part 1, I discussed the three following documents: the loan application (1003), the itemized fees worksheet (IFW) and the HUD settlement cost booklet. All of these documents are three of the earliest and most basic documents that disclose and explain a buyers closing costs.
In Part 2, I want to discuss three more documents that disclosed to the borrower their closing costs and that also require the borrowers signature stating that they acknowledge receiving these documents and have been apprised of what their closing costs and fees are that are associated with their mortgage loan.
Good Faith Estimate (GFE): Once a propety has been identified, by law, the MLO/lender is required to provide the borrower with a GFE for the property. The GFE is a three page document that not only summarizes the terms and conditions of the loan you've applied for but it also breaks down your settlement costs and fees.
Furthermore, it also explains to you which fees and costs are subject to change, which is anywhere from zero tolerance to no more than 10% tolerance. For the record, the lender origination fees have a zero tolerance and only title and escrow fees are eligible for the 10% tolerance. The GFE also provides a comparison table for borrowers to be able to compare different loan products that they are shopping for.
Mortgage Loan Disclosure Statement (MDLS): Like the federally regulated GFE, the MLDS is provided to the borrower once a property has been identified and in conjunction with the federally regulated GFE.
Like the GFE, the MLDS is a three page document that not only summarizes the terms and conditions of the loan you've applied for but it also breaks down your settlement costs and fees. The borrowers signature block is on page three.
Here in CA, the MLDS is regulated by the CA DRE and the CA DRE requires that a borrowers settlement costs be separated by which ones are paid to the broker and which ones are paid to the other settlement service providers.
Settlement Statement (HUD!): The HUD1 is similar to the GFE in that it summarizes the terms and conditions of the buyers loan as well as itemizes all of the costs and fees associated with the escrow transaction. The borrowers signature block is on the last page.
However, unlike the MLDS that separates the brokers costs and fees from the other settlement servicers costs and fees, the HUD1 statement identifies which costs and fees are the buyers and which ones are the sellers. Additionally, the HUD1 also compares the GFE costs and fees to the HUD1 costs and fees to illustrate that they are within their federally regulated GFE tolerance levels.
Typically, the buyers MLO/lender will receive two HUD1 statements, one when escrow is opened (estimated HUD1) and one more before loan documents are ordered (final HUD1). The borrower is required to sign both statements to acknowledge that they have received copies of them.
This is why it is legally impossible for a buyer to get all the way to the closing table without knowing what their costs are. Regardless of whether or not an MLO and/or lender explained every single detail of these disclosures and documents, the fact that the buyer was provided these disclosure and documents and is required to sign and acknowledge most of them leaves the buyer responsible for knowing what they're signing and asking questions if they don't know what they're signing.
As I've said before, I find it irresponsible for any MLO/lender to not fully explain these documents and disclosures to their borrowers. However, I also find it irresponsible for any borrower to not understand what they are signing too. Getting a mortgage loan is a very serious financial decision and for anyone to take it so carelessly as to not know what their closing costs are going to be is just plain foolish.
Buying a home is one of the most important decisions someone can make. The home buying process is not a simple process and it's because it can get really complicated and convoluted, that borrowers today need to be working with true professionals who can and will serve their buyers best interests. If you have any questions and/or concerns, please feel free to contact me, Donne Knudsen at 805.2069123 or donne4loans@earthlink.net. That's what I'm here for and I would love to be able to assist you in your search for an affordable home loan.
HOW ARE A BUYER'S CLOSING COSTS DISCLOSED? Let Me Count the Ways! - Part 1
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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
I agree there is no way possible that happen.
Its just a way the borrower can haggle the fee's last minute.
Donne -- a good two part series --- these days with all of the rules, regulations, timeframes and fees spelled out and then rinse seemingly repeated multiple times --- I find it highly unlikely that a buyer/borrower would be unaware of closing costs. They may be in denial but that's another story. Of course, as we know some first timers(and yes, some repeat borrowers)need a bit more handholding and explanation along the way but the opportunity to learn the truth certainly has been presented to them. Excellent presentation!
Again I say Amen Amen Amen. And I have a questions. I know costs can't be more than 10% higher or a re-disclosure and waiting period must occur, but what if they are 11% less at closing than the GFE?
Donne, this two-parter is terrific! Let you count the ways--indeed. Brian
Donne this is great and I am going to reblog this too. A good series on lending or explaining what the different closing cost are would be appreciated.
Donne, no kidding! disclose, disclose, disclose! As experienced by me recently they aren't listening! Yes, there are closing costs! DUH Thanks for this post, well done.
Donne: I simply cannot belive that a buyer would be that unaware. I always have the buyer sit with the lender and have them get every last item explained! Plus, there is the estimated closing statement that escrow gives the buyer on top of all of the items you mentioned!
Donne you are doing a great job of showing that there is no way that a Buyer could be unaware of their Closing Costs. It is spelled out in detail, especially on the GFE. I wish I had read the blog that you referred to, because I would have love to have shown the Realtors that were criticizing that they did not know what they were talking about.
If the borrower is paying any attention at all, there is just no way for them to not have any idea of the costs.
Adam - I completely agree. Nowadays, it's impossible for a buyer not to know what their closing costs are.
Michael - I do too and think any buyer making some claim is being either less than honest or was deaf, dumb and blind everytime their MLO/lender provided them with one of the required disclosures or documents.
Tammy - Less fees is not a big deal. So many MLO/lenders now are actually over-estimating for that exact purpose. I would rather over-estimate and have my borrowers fees come in less than to under-estimate and have them come in higher.
Brian - After reading a post here on AR where a bunch of Realtors were blaming MLO/lenders for allow buyers to get to the closing table without knowing their closing costs, I knew that so many more people still needed to be educated on how incredibly unlikely that is of happening.
Gene - I'm glad you liked my posts. Hopefully, it will help people to understand closing costs more.
Thx for stopping by everyone; I appreciate it. Have a good night and a great weekend too. :)
Donne: AWESOME post and love this series! This is invaluable information for any and all buyers! We have to inform them just as the lenders to--or at least review what the lenders do with them. I can't imagine getting to the Closing table without a good understanding of all that their costs are and what they cover.
Elizabeth - No matter how much we disclose, there will always be someone who will claim that they were never told. The problem is that they were told, several times, they just weren't listening.
Jane - I actually don't believe it but rather believe that the buyer in that other scenario was simply just being less than honest. Either that or they were deaf, dumb and blind when their MLO/lender disclosed their costs to leave all throughout the transaction.
George - I'm not sure what was more incredulous, that some buyer would claim that they didn't know what their closing costs were or that some Realtor would believe them. You know me, I was annoyed at the MLO bashing and said as much.
Rodney - And that is the key phrase here "paying attention". I said it before and I'll say it again, for any buyer to get to the closing table and not know their closing costs, they would have had to have been deaf, dumb and blind throughout the transaction.
Thx for stopping by everyone; I really appreciate it. Have a good night and a great weekend too. :)
Debe - I'm glad you liked my posts and I hope it helps buyers understand their closing costs more. While I do agree that it is the MLO/lenders responsibility to explain closing costs to their borrowers, it's also the borrowers responsibility to understand what their signing too. Good grief, haven't enough homeowners gotten themselves into enough trouble already by not understanding what they were signing and what they were going to be responsible for?
Thx for stopping by; I appreciate it. Have a good night and a great weekend too. :)
You know the biggest problem I have with a HUD nowadays is trying to explain to negotiators that a seller credit on the HUD -- such as escrow fees or country transfer tax -- are not really credits. They just don't get it. I have one of these going on right now. We've been arguing over the escrow fee for 3 weeks. It's $1,200. Not chump change. The seller is paying it. And the negotiator would approve the fee if the escrow company would put it in a spot on the HUD as a debit, but we can't do that because we'd breaking federal law. Ack!!!
Donne, I don't see how a consumer wouldn't find this series immensely helpful. As a former LO myself you are right on the money (ouch).
Elizabeth - OY VEY!!! What nonsense! You would think those negotiators would understand the rules or regulations. Oh wait, what am I saying - they think the rules don't apply to them.
JP - I hope that consumers and prospective buyers (and even Realtors too) do find it helpful. After reading that other post, it was obvious that a lot of people simply didn't understand how impossible it is for a buyer to get to the closing table and not know what their closing costs are.
Thx for stopping by folks; I really appreciate it. Have a great week too. :)
Great series. I think the buyers choose not to read or are in denial. They are as you so lucidly pointed out reminded again and again that there will be closing costs and what they will be.
Maya - I totally agree that some buyers may not pay attention when these documents and disclosures are being explained to them. At this point in my mortgage career, I can tell when someone is not listening to me but when I get to these disclosures and documents, I will repeat myself until I do get their attention because I want to make sure they understad what is going to be expected of them.
Thx for stopping by; I really appreciate it. Have a good day Maya and a great week too. :)