In an effort to keep fraud in the mortgage industry to a minimum, a new set of laws was introduced in 2010 to address how lenders must disclose important information to borrowers.
The laws attempt to do two things.
The first, part of which has been in place for some time already, is to disclose information to borrowers in such a way that they can shop around and compare options.
The second is to disclose fees in such a way as to avoid surprises at the closing table, specifically for people purchasing a home as opposed to just refinancing.
Fees are disclosed on what is called the good faith estimate at the time of application. The costs disclosed in these estimates must fall within certain tolerances of the actual numbers that borrowers will see at the closing table.
The costs can definitely go up in certain circumstances, such as in the case of rate spikes, but this information must be disclosed to a borrower well in advance of closing so the borrower can decide whether or not to proceed with that lender. Should there be huge overages in the costs from an initial estimate, the lender must absorb the difference. The new rules will permit borrowers to compare apples with apples when looking for a mortgage.
When reviewing offers, however, keep in mind that a lender might charge a higher fee but offer a lower rate that might pay for the fee many times over and could be a better deal than a no-closing-costs loan with a higher rate.