Willow and Hearth

A mortgage borrower gets two documents that list closing costs, and the Consumer Financial Protection Bureau says the fees on them are not all held to the same standard. A lender must send a Loan Estimate within three business days after a loan application is received, according to the bureau’s guide to the Loan Estimate and Closing Disclosure forms, version 2.1 dated May 2018. The Closing Disclosure comes later, and the borrower must receive it at least three business days before closing.

The bureau’s page on what a Closing Disclosure is, last reviewed May 2, 2023, describes it as a five page form with the final loan terms, projected monthly payments and fees. It says the three day window exists so that borrowers can compare the final terms and costs against the Loan Estimate and ask the lender questions before closing.

The three groups of fees to compare

The bureau’s page on whether final mortgage costs can increase from the Loan Estimate, last reviewed Sept. 11, 2024, sorts charges into three groups. Comparing the two forms group by group is the quickest way to see whether a change is allowed.

The first group is fees that cannot increase at all, unless there is a change in circumstances. The bureau lists fees paid to the lender, mortgage broker or their affiliate for a required service, fees for a required service the borrower could not shop for when the provider is not affiliated with the lender or broker, and transfer taxes.

The second group is fees that can increase by up to 10 percent, again unless there is a change in circumstances. The bureau lists recording fees, and fees for required services when the borrower chose a provider from the lender’s written list. If that provider is an affiliate of the lender, the cost cannot change at all.

The third group is costs that can change. Prepaid interest, property insurance premiums and initial escrow account deposits can increase by any amount, according to the bureau. So can fees for required services the borrower shopped for separately with a provider not on the lender’s list, and fees for third party services the lender does not require. An interest rate that is not locked can change at any time, and a locked rate can still change if the application information changes or the borrower does not close within the rate lock period.

Where they sit on the forms

The guide shows how the Loan Estimate’s second page is laid out. Loan costs are split into Origination Charges, Services You Cannot Shop For and Services You Can Shop For. Other costs are split into Taxes and Other Government Fees, Prepaids, Initial Escrow Payment at Closing and Other. Lender credits appear as a negative number in the Total Closing Costs line. The same headings let a borrower hold the Loan Estimate next to the Closing Disclosure and compare line by line.

The guide also lists the seven parts of the Calculating Cash to Close table. They are total closing costs, closing costs financed, down payment or funds from borrower, deposit, funds for borrower, seller credits, and adjustments and other credits. A change in any one of them can move the cash a borrower has to bring to closing.

When a change is allowed

The bureau says a lender may change closing costs without those limits when there is a change in circumstances. Its examples include a switch in loan type or down payment amount, an appraisal that comes in higher or lower than expected, a change in the borrower’s credit because of a new loan or a missed payment, or a lender that cannot document overtime, bonus or other income.

If costs exceed the allowed limits and there was no change in circumstances, the bureau says the borrower is entitled to a refund of the excess. Lender credits are treated as a negative charge, so a credit that falls below the Loan Estimate amount counts as an increase. According to the bureau’s TILA RESPA integrated disclosure FAQs, lender credits may decrease only when a changed circumstance occurs and a revised estimate is provided within three business days.

If the Closing Disclosure changes late

A corrected Closing Disclosure can be provided at or before closing without a new waiting period in most cases. The FAQs name three exceptions that require the borrower to receive a corrected Closing Disclosure at least three business days before closing. These are an annual percentage rate that becomes inaccurate, loan product information that becomes inaccurate, and a prepayment penalty added to the loan.

Steps for a borrower

Put the Loan Estimate and the Closing Disclosure side by side as soon as the second arrives. Mark each fee in the three groups, and circle any that moved. For a fee in the first group that rose, ask the lender in writing what changed in circumstances, if anything. For a fee in the second group, check how much it rose against the 10 percent limit. For the third group, ask whether the amount reflects a real change in insurance, interest or escrow.

The bureau’s pages note that reverse mortgages and home equity lines of credit are handled differently and do not come with a Loan Estimate and Closing Disclosure. Questions about what a particular fee means or whether a refund applies belong with the lender, the title or settlement company and the bureau, and state law may add its own rules for the state where the home is.