What happened? You got an estimate of your closing costs to close on your new home. You went through all the motions of obtaining financing. You got to the closing table or maybe you were lucky enough to know a day ahead of time that you do not have enough money to close the transaction. Has this happened to you? What do you do? Many times borrowers are faced with this dilemma of where to find the additional funds at the last minute. The most recent person to call us was $1500.00 short at his closing and we were not involved in the transaction! In 33 years in the mortgage business, we've learned that there are others in the industry who are not as professional as they appear to the unknowing consumer.
An estimate is just that...an estimate. In today's society we've all learned to look for a bargain. When you are looking for a contractor to work for you, you will most likely want the lowest estimate. The low man usually gets the job. Consumers look for the same in financing. You "shop" for your mortgage gathering three or more estimates. How do you choose which mortgage company to use?
Here's the problem: Consumers are often led astray by understated good faith estimates and fees change at a later time to someting more objectionable. This is called a "Bait and Switch". It is our experience that if a loan officer or mortgage broker has been in the business for any length of time, he should know how to "estimate" the expenses assciated to the closing on the home.
Where Estimates are Understated:
1. Taxes and Homeowner's Insurance - To accurately disclose, he should know a little more about the property such as what the real estate taxes and homeowner's insurance costs are. We do the homework on the property before we release an estimate. In Florida we will often OVER estimate the homeowner's insurance for a worse case scenario until the borrower chooses an insurance company because this affects two areas of the good faith estimate. The 12 month premuim up front and the monthly amount to put in the escrow account. This amount also affects the monthly payment. It is always better to work off a higher number and go downwards than it is to work off a lower number and go upwards.
2. Escrow Account - If a professional has closed enough loans, he knows how many months of taxes and insurance need to go on the estimate!
3. Additional Junk Fees or Higher Fees than Anticipated - This area seems to bear the most abuse in underestimating. The loan discount fee, loan origination fee and mortgage broker fee should not change without the borrower's knowledge!!! If the loan amount has changed or the borrower has chosen to pay an additional discount fee to lower his interest rate, a new estimate should be prepared, delivered AND signed by the borrower to acknowledge the change well before closing. This procedure is actually required by HUD and federal law (RESPA)!
Why did your mortgage professional underestimate your costs? Simple! He is either new to the business and just didn't know OR he wanted to be the "low man who got the job". A poor salesman will tell you what you want to hear and worry about the consequences later. You won't know until the very end. What are you going to do? Walk away from the transaction, delay the closing or fork over the additional funds? None of those options are fair!
Make sure you are not the next victim of Bait and Switch. Better to call Steve or JoAnn Srein - People's First Financial Services, Melbourne, FL 321-242-8240
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