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Sometimes Major Closing Cost Errors Are Made by Incompetent Loan Officers.

This may sound like a given, but there's a difference between being a crook and being stupid. A crook will lie to your face, whereas someone who's stupid simply may not know any better.

There are common closing cost misquotes, and those misquotes often involve not reporting mortgage interest, taxes, or insurance properly—all recurring closing fees.

Property taxes aren't readily known by your loan officer but have to be guessed at when the loan officer compiles the GFE. Good loan officers will know the approximate property tax rates and quote accordingly. Good loan officers will also be able to estimate home insurance quotes. But they also have to quote an item called "prepaid interest."

Prepaid interest is interest that is paid ahead of time to the lender. There is only one time when the lender accepts prepaid interest, and that is with a brand-new mortgage loan. To understand prepaid interest, you must first understand the difference between rent payments and mortgage payments.

Rent is paid in advance. When you pay rent on the first of the month, you're paying for the month you're about to live in the property. When you pay mortgage interest, it's always paid in "arrears," or backward. When you make a mortgage payment on the first of every month, you're paying for the previous month's accumulated daily interest charges.

Your lender will add up your per diem interest from the day of your closing to the first of the following month.

Let's say you have a 7.00 percent 30-year rate on a $200,000 loan. That gives you a $1,330 monthly payment, which divided by 30 days equals $44.35. Thus, $44.35 is the daily interest accrual. Your closing is taking place on the 25th of the month, so your new lender will collect daily interest up to the first of the next month, or six days. Six days times $44-35 equals $266.10. This is the amount of the prepaid interest on your new mortgage.

When you make your first mortgage payment, it will be on the first of yet the next month, and this time it will cover a full month's worth of interest.

When a loan officer calculates your GFE, there is a space where the daily interest accrued is listed. Many loan officers keep this figure as low as possible, again to make their closing cost estimate look better. If your loan officer calculates that your closing will take place on the very last day of the month, your prepaid interest will be for only one day—in this example, $44.35.

If the contract on your new home states a closing date of the tenth of the month and you don't get a new GFE, then you'll be surprised at the new, higher amount of $887, not the $44.35 originally disclosed. Rookie loan officers can sometimes overlook this issue and not warn you that the amount of money due at closing can change based upon when you actually close your loan.

 
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