Was This Borrower Overcharged?
November 26th, 2007
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A letter from a reader asks: “Why are the closing costs so high on an FHA loan? They want to charge me $7,000 or $8,000.”
Most likely your closing costs include several large charges, some of which do not relate directly to your FHA mortgage.
First, your state and local government believes real estate transfers should result in a stiff tax. Since the tax is typically a percentage of the sale price, the tax rises over time while the politicians can claim that, no, they haven’t raised taxes. Since some of those who are selling are also leaving the state, they are the politically perfect people to tax….
Second, take a look at your costs for title insurance. A GAO study found that 70 percent of this expense typically went to the closing agent as a fee — in other words this is money that won’t go to settle insurance claims. The title insurance industry has worked hard to assure that minimum fees in many states are set by law, meaning you can’t negotiate for a better deal. At least ask if you are entitled to a “re-issue” rate, the rate charge when the home has transferred in the past five to 10 years.
Third, if you pay your FHA mortgage insurance premium at closing it can add up. For instance, 1.5 percent of $300,000 would be $4,500. The good news is that this sum can be financed into the loan. The bad news is that your debt will increase. Speak with your lender for details.
Fourth, bigger loans mean bigger fees and costs. That’s just the way it is.
The bottom line: Your lender must give you a good faith estimate of closing costs within three days of application. Read that form carefully. If you see charges you don’t understand ask the lender to explain why they are there.
Have an FHA question? Please add your comment below.
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This entry was posted on Monday, November 26th, 2007 at 4:32 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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June 19th, 2009 at 5:32 pm
Can a mortgate broker charge and application fee for an FHA loan? We were charged a “non-refundable” application fee of $500. Is this legal? I heard that it was against FHA policies.
Thanks!