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Taking a Good Look On Closing Costs For First Time Home Buyers
Many first time home buyers are taken by surprise by the amount they need to produce for upfront costs related to closing. The usual misconception is to just prepare for the down payment and for the subsequent amortization payments. However, when you apply for a mortgage from a lender, they will usually give you a GFE or a Good Faith Estimate which (as the name implies), an estimate of the closing costs you'll need to come up with for the purchase of the house.
Since they are just estimates, they could still go up or down. It's not unheard of to see the estimated closing costs jump up 10% because of adjustments in the fees. it's a good thing that at the start of 2010, new rules are already imposed by the Department of Housing and Urban Development concerning structuring closing costs and GFEs.
In a nutshell, the new rule has more specific requirements when dealing with how fees are communicated by the lender to the borrowers. Let's say that you are looking through Westchester homes for sale. You have prepared a budget for the closing costs of the house based on the GFE that was given you by the lender, but without understanding of the items in the GFE, you have no idea which ones can go up at the time of closing the sale on the Westchester real estate property that you bought. If you are unprepared for the closing costs that could come from buying a house, it's possible that it may delay the closing until you get the appropriate funding for it.
The new rule requires lenders to use a standardized form instead of using their own forms to communicate fees to borrowers. By doing this, lenders will be encouraged to be more transparent about their fees to borrowers. As you look through the standardized list, you can check which ones are adjustable and which ones are fixed. You can also ask the mortgage broker which fees you can get a discount on.
Regarding the fees that are adjustable, there are those that have a limit to them. Meaning they have a cap on the percentage with which they can increase. Some types of fees can only increase by a minimum of 10%, which is relatively manageable. Some can increase without limit because essentially, they are from third party companies referred by the lender, and they have no control over whether these items go up in price or not.
One example is the title insurance policy. Since the lender has a third party company that does this for their clients, they have no control on the fees. However, because they are third party companies, you do have the option of not going with that company. Say for example that you want to secure title insurance for the Westchester real estate that you purchased.
Remember that there are some items in the GFE which you can change if you can find a third party company that will give you a better deal.
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