How Are Mortgage Closing Costs Abused?

Summary

Your mortgage closing costs can be thousands or tens of thousands of dollars.

Here are some quick tips to help make sure you get a great deal and aren't surprised at the last minute with massive overcharges.

Basics

Your closing costs can include over two dozen types of closing costs. A mortgage transaction for a purchase or refinance can involve a large number of different parties, each of which need to be compensated. These parties include:

• title
• escrow
• realtors
• lenders
• government

Figuring Out Your Closing Costs

When you apply for a mortgage you should receive a written "Good Faith Estimate" within three days of your application.

This good faith estimate is only an estimate of your mortgage closing costs. It is not a guarantee. Many of the costs are third party costs so a lender or mortgage broker can't guarantee their charges.

Your closing costs may change legitimately if:

• your loan size change
• your loan type change
• your credit is lowered

When you get different estimates from competing mortgage lenders you should make sure the estimates are thorough. If one offer seems to be particularly low it may be because not all of the closing costs are listed on the estimate. This is lowballing the estimate to get the business.

How To Protect Yourself From Closing Cost Abuse

More than one borrower has gone to their loan signing only to be surprised by much higher rates, fees, different loan type, or other changes.

Sometimes the costs will change substantially for a good reason, such as your credit declining in the middle of your application (a late mortgage payment, for example).

In other instances the substantial change is unfair.

One of the main ways you can protect yourself is having the ability to walk away from the deal.

It typically takes at least 30 days to get a new loan from a different lender, but can be much quicker depending on the mortgage broker or lender.

If you are refinancing make sure you can walk away from the deal and reapply somewhere else. A refinance usually also has a 3 day "change your mind" clause that allows you to back away from the deal. Check your paperwork or with your legal advisor.