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Your Loan Officer Is Supposed to Advise You of Potential Charges, but the Estimate Doesn't Have to Be Accurate.

That's because there is no universal guideline for what makes a "good" GFE and what makes a worthless one. There are certain guidelines for what sort of variance is acceptable and what is not, and most of those guidelines suggest that the final set of closing costs determined at closing must not exceed the original closing cost estimate by 1/8 percent of the amount borrowed. But there is no federal statute making that a requirement. There is, however, a requirement that if the compensation to the lender or the mortgage broker is higher than originally quoted, then the borrowers must sign a written acknowledgment that they're aware of the increased fees and/or compensation.

But if the loan officer is off, so what? You can't sue him to get your money back unless the error was willful and was made with an intent to deceive. If the loan officer says, "This loan will cost you $100" (this is an exaggeration), but when you go to closing, there is actually $10,000 in closing fees, that's an intent to deceive. Being off by a couple of thousand dollars might be just a bad estimate. Instead of bringing $8,000 to the closing table, you might have to bring $10,000, for instance.

Federal Truth in Lending Laws, which require lenders to calculate, among other things, the annual percentage rate, or APR, were designed to help consumers compare one lender to another and to help explain the various closing costs associated with a particular loan. In fact, these laws do require that anytime a lender advertises an interest rate for a mortgage loan, that same advertisement must disclose the APR right alongside the rate quote.

If you look closely at home loan ads, you'll see these APR numbers. If you don't see them, the lender is in violation of federal lending laws, but most likely you'll see the APR. It's the APR that is used in the guideline: There is approximately 1/8 percent tolerance in the difference between the initial APR and the final APR that is disclosed at your loan settlement.

For instance, suppose you buy a $150,000 home and secure a 5.50 percent 30-year fixed-rate loan. After all appropriate finance charges are added up in order to calculate the APR, your rate figure might come in at a 5.72 percent APR. When you go to closing, you'll see your final APR figure on your Truth in Lending document. If your APR comes in at or below 1/8 percent above 5.72 percent, or 5.845 percent, then your final APR number is "within tolerance." If it's higher than that, you're said to be "out of tolerance."

But again, this isn't something that's currently against any law. It's just bad business. You have to decide whether to take the loan with the higher fees, as expressed by the new APR number and your final settlement sheet of listed closing fees. If you choose not to take the loan, you walk away. Unfortunately, if you walk away, you could also lose your house and your earnest money deposit.

That's not a good situation to be in.

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