Start with your GFE
All lenders are required to provide a three-page good faith estimate, or GFE, to borrowers within three business days of receiving a loan application. The GFE is the lender's estimate of closing costs, and it is required to be fairly accurate. The HUD-1 settlement statement comes later, and itemizes the fees that are charged at closing. The two documents have been designed so borrowers can compare the estimated fees against the actual fees.
Cory Martilla, a sales manager with Supreme Lending in Dallas, says, "Borrowers should be careful to check the first page of the GFE when they receive it to make sure the dates are accurate and they have a legitimate locked-in interest rate offer. It is imperative to check the loan summary and the lock, because if they are incorrect, the lender will not have to provide the loan as promised."
Tim Ross, president of Ross Mortgage Corp., in Royal Oak, Mich., says borrowers should look at "adjusted origination charges" on the GFE so they know whether they are paying points or receiving credit to change the interest rate. That information is found in box 2 on Page 2 of the GFE.
Ross says the GFE prevents any lender from making any changes to rates and terms at the time of closing.
"The only way your loan terms can be changed would be for the lender to reissue a new GFE, which cannot be done at the closing table," says Ross. "In fact, there has to be 72 hours between the issuing of a new GFE and a closing. Even if the borrower requests the change, it cannot be made at the closing table."
Compare your HUD-1 and GFE documents when refinancing
Todd Ewing, founder and president of Federal Title & Escrow Co., in Washington, D.C., says "Consumers should hold their lender and title company accountable for getting the HUD-1 statement to them before the settlement, at least one day in advance, in order to give them time to read and understand it."
Closing documents for a refinance include multiple pages of privacy notices, disclosures and permission to review tax returns. The most important pages to review are the HUD-1 statement and the note, because these two documents are the ones that detail the cost of the refinance and the loan terms.
Ewing says the borrower should take the GFE to the closing to make sure it is available for comparisons.
"Consumers should check to be sure there is not an appraisal charge on their GFE if they paid the appraisal fee in advance," Ewing says. "Another place to check for mistakes is in the '900' lines on the HUD-1 for escrow items. Be aware of when your taxes or home insurance premiums have been paid so that the new lender doesn't collect more than necessary."
Ewing says homeowners who are refinancing should receive a reissue rate discount on their title insurance, which should show up on the HUD-1.
Remember the adjusted origination charges, in box 2 on Page 2 of the GFE? Those figures should match up with the numbers found on lines 802 and 803 of the HUD-1.
Section 1300 on the HUD-1 lists "additional settlement charges." It's a good idea to ask what these fees are for, and whether they are necessary. Ewing suggests that consumers go online to check for average closing cost fees at other local title companies to make a comparison.
Read the note
Before signing, borrowers need to check the note for accuracy and for the date of the first payment. The note is a binding legal document.
Consumers who have questions or concerns during a closing should ask for clarification and decline to sign inaccurate documents. Borrowers legally have three business days to rescind a mortgage refinance on their primary residence if the new loan is not from the same lender as the old loan.
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