How to avoid being overcharged on settlement fees


May 30, 2004

Dear Mr. Azrael:

What can a homebuyer do to make sure he is not subjected to unfair fees or being overcharged at settlement?

Dear Reader: The best way to protect yourself against unfair settlement fees is to get a commitment from the lender or mortgage broker in writing when you first apply for a loan.

The lender or broker is required to provide a good faith estimate of closing costs. Review the estimate carefully and ask the lender or broker to explain any charges that concern you.

You also may discuss with the lender or broker whether they would guarantee that the closing costs will not exceed the estimate. If possible, the guarantee should be in writing.

When you go to closing on your loan, make sure you have the estimate with you. Compare the charges on the settlement statement with those listed on the estimate. If the total charges exceed those shown on the estimate, insist on an explanation and get the lender or broker on the phone if you are not satisfied. If you object strongly, some of the closing costs may be reduced.

In some cases, closing costs on the settlement statement may legitimately exceed those on the estimate. This may occur on loans where the lender charges advance interest or requires escrows for real estate taxes and insurance.

The charges for these items vary depending on the day and month your closing occurs. That is why they often cannot be accurately predicted on an estimate, which is prepared when you first apply for a loan.

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