Why are Mortgage Loan Estimate Closing Costs Wrong and Usually Too High in NYC?

[aslan]

I've seen too many buyers who are getting a mortgage freak out when they get the mortgage loan estimate closing costs from their mortgage broker or bank. The loan estimate closing costs that the bank discloses are usually way higher than buyers expect, and are often incorrect. What's the deal?

Are banks just being too cautious? I understand it's an estimate and they are required by post crisis regulations to disclose potential costs.

[lower_nyc]

I've seen too many buyers who are getting a mortgage freak out when they get the mortgage loan estimate closing costs from their mortgage broker or bank. The loan estimate closing costs that the bank discloses are usually way higher than buyers expect, and are often incorrect. What's the deal?

Are banks just being too cautious? I understand it's an estimate and they are required by post crisis regulations to disclose potential costs.

You are correct in that the estimates are really high. I've seen the buyer closing cost estimate even include the transfer taxes that the seller is going to pay!

[showtime]

I've had a few mortgage bankers explain this to me. There's a very good reason that the closing costs you'll see on a loan estimate are always too high. That's because banks are responsible for the difference if they under disclose fees in today's regulatory environment.

Jokes aside, a bank had to pay $100,000 because it didn't disclose that the buyer had to pay transfer taxes for a new construction deal. As a result, transfer taxes are now disclosed automatically on 100% of deals, even for normal re-sale transactions.

As you can surmise, there's no upside really for a bank to under disclose fees on the loan estimate, but there is massive financial downside for banks to under disclose fees.

If you're trying to compare loan estimates from two different banks to see who is cheaper, focus on Sections A and B of the loan estimate. Those sections are specific to the bank. You can also filter out the interim interest section of the loan estimate as mortgage bankers can play around with that to make things appear optically better (depending on your estimated closing date).