Borrowers who say they are surprised at closing by the costs they are expected to pay have not read all the paperwork their lender has given them. New rules that went into effect in October 2015 are designed to eliminate such surprises. Under the rules, borrowers should receive an estimate of the closing costs within 3 days of their application, and the actual closing costs 3 days before closing. If there are any surprises it is only because borrowers have not read the paperwork. There are now 2 forms that replaced what used to be four forms and pricing is set in advance.
The first form is the loan estimate form. Lenders are required to provide borrowers this form within 3 days of submitting a mortgage application. The three-page form details the terms of a potential loan, including the amount borrowed, interest rate, whether the rate is fixed or adjustable, and other terms of the loan, as well as estimated closing costs.
The second form, the closing disclosure form, must be received by the borrower at least 3 days before closing. The two forms should match. The loan amount, interest rate, monthly payment and other costs should be the same on both forms. If not, borrowers should ask their lender why. The closing disclosure form will also detail the amount of your monthly mortgage payment figure, including any mortgage insurance and estimated escrow costs, and will detail the amount of the closing costs.
The disclosure rules allow lenders to make changes under certain limited circumstances in pricing, including increases in charges. But at the end of the process, itemized charges in the loan estimate should line up with the final closing costs.
If you are planning to buy a home and get a mortgage, if there is a change in the loan estimate you were given, ask your lender for an explanation. Make sure you review the closing disclosure form and all charges carefully, and understand and agree with everything before the final settlement date.