When you apply for a home loan, your lender is required to give you a good-faith estimate -- a list of the charges you’re likely to incur in connection with the settlement of the loan. The estimate is meant to be used primarily as a tool for comparison shopping for a mortgage.
But thanks to some stricter rules that have been in place since 2008, if some part of that estimate is off by too much from your actual cost at closing, the bank may have to pony up the difference, either by issuing a credit directly on the HUD Settlement Statement at closing or by paying you the required amount within 30 days.
For things such as title insurance, recording charges and other lender-required services, if the lender selects the provider or the borrower chooses a lender-identified provider, the estimates must be within 10 percent of the actual costs listed on your HUD statement. For such things as transfer taxes and origination charges, there is a zero-percent tolerance -- and those can be sizable sums, says Smithtown attorney Vincent Danzi.
“What is relatively unique about our area as opposed to the rest of the country would be the extremely high transaction costs we pay here,” Danzi says. “Transfer taxes in New York can account for well over $10,000 in a typical home purchase on Long Island.”
New York’s rules aren’t well understood by all lenders, so errors are not uncommon, he says. The greatest potential for big mistakes here is in consolidation transactions, which are usually done in connection with a refinance rather than a home purchase, he says.