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Main Street Abstract Company
Title Insurance in Southeastern PA including Bucks, Montgomery, Chester, Delaware and Philadelphia County
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Some homebuyers confused by closing-cost rules
The Intelligencer.com, Jan. 21, 2010, by David W. Myers
A new law limits the amount that home buyers can be charged for the expenses involved in getting a loan, but some prospective borrowers don't know how the complicated guidelines work.

Dear Mr. Meyers: We agreed to buy a house, and our lender provided a statement showing our loan's estimated closing costs. The estimate for the cost of a title search and title insurance policy from a company recommended by the lender totaled $1,127, but we decided to use a differnet company because we thought it would save us money. When the deal closed last week, the final settlement statement showed that the company we chose charged us $1,640 for its services - more than 40 percent over the bank's estimates. Isn't the illegal, because the new law that you wrote about a few months ago says that the actual closing costs cannot be higher than 10 percent of the lender's original estimates?

ANSWER: I'm afraid that you misread that earlier column.

Under a new federal law that took effect Jan. 1, all lenders are now required to provide prospective borrowers with a standardized, three-page "good faith estimate" of their closing costs. The law essentially divides these costs into three seperate categories: Those that cannot change from the bank's estimates, those that can rise by as much as 10 percent, and those that can change without limit.

Fees that cannot change from the good faith estimate, commonly called a GFE, include the lender's origination and underwriting charges, as well as the pre-paid "points" the borrower might have to pay based on the agreed upon loan amount and interest rate.

Fees that can rise by up to 10 percent at settlement include services that are either required or recommended by the lender. Had you used the title company that the bank suggested, the cost of the title search and title policy could not have increased by more than 10 percent of the original $1,127 estimate.

But since you instead decided to pick an "outside" vendor for the search and title policy, the 10 percent limit didn't apply. The fees charged by other service providers that are chosen by the borrower and not recommended by the lender are also subject to unlimited increases. They include charges for homeowners or flood insurance, fees for a pest inspection or needed pest-control work and the cost of daily interest charges that the bank may charge while the transaction is waiting to close.


For the lowest title insurance rates and real estate settlement services in the Philadelphia and Lehigh Valley PA region, contact MAIN STREET ABSTRACT COMPANY! We strive to make each and every settlement as efficient and stress-free as possible.

Please feel free to call or email us with any questions.
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