If you are refinancing, you have probably already checked your current loan’s rules, to see if you’re going to have a prepayment penalty.

If not, you should. You don’t want any surprises.

Mortgage Expert,

I applied and was approved for a cash-out mortgage refinancing. The loan amount was for $260,000, which I expected to be enough to pay off the balance on my existing first mortgage, a home equity line of credit, a credit card balance and the loan’s closing costs.

The lender provided me with a good faith estimate for estimated settlement charges of $3,617. On the day of closing, the closing attorney’s office called to tell me that I would need to bring a check to the closing for $5,029. After making some calls, I learned from an administrator in the closing attorney’s office that my existing first mortgage had a prepayment penalty.

The writer’s question is, shouldn’t she have been told prior to closing date that her loan had a prepayment penalty, and, since she wasn’t, could she sue anyone (she ended up not closing, but had to pay certain fees, including her attorney, nonetheless).

The expert’s answer was, no, you really have no case.

Whether you are getting a new loan or refinancing an existing loan, your lender will give you a “good-faith estimate” of closing costs, etc. This is just what it sounds like, “good-faith”. It doesn’t guarantee anything. It’s just a good way to compare one lender’s loan with another. Really, the chances of the estimate being remotely close to the actual closing costs is pretty remote.

The good-faith estimate is not to be confused with the “settlement statement” which is actually called the HUD-1 Settlement Statement, a document every borrower must receive from his or her lender, at least 24-hours before closing (the woman above says she got the document the same day she was supposed to close, which isn’t the requirement, btw).

The settlement statement should be pretty much 100% accurate, minus an adjustment here or there.

Bottom line is, if you are counting pennies and worried about having enough cash to close on your new home, you should talk more at length with your lender about what you’re going to have to pay out at closing. And, do it more than 24-hours before closing.

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Updated:  1st Q 2018

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