Total Estimated Funds needed to close - does this always have to include the additional down payment needed?

Asked by Melanie French, 92679 Tue Feb 14, 2012

We are closing in 4 days on a short sale (FHA) high loan balance of $492 k. We believed our amount in the Estimated Funds needed to close worksheet total INCLUDED the additional 13k down payment that we would need to close the deal.

Loan officer sent us the GFE estimate last night and says the total estimated settlement charges are 20K and nowhere on that charge sheet is the additional down payment amount.

We are fearful that we will need to pay the remaining down payment ON TOP OF the settlement charges. The 3.75% 30-year loan had a credit of 7 K that reduced the charges and the settlement charges would have been 27 K - which we think is quite high without the down payment in included.

We will meet with her today but wanted to brace ourselves for what's to come.

If we pay the 20k and the 13k it will leave us liquidating all of our money without a cushion.

Any thoughts from a professional? Thanks for your time!

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Jim Simms, Mortgage Broker Or Lender, Louisville, KY
Tue Feb 14, 2012
LO’s are required to give you a GFE at the very beginning of the loan process, they are not allowed to make changes to those numbers without your knowledge. Pull out your original copies and compare them to the most recent version, what changed and why?

If they didn't give you a copy in the begining, turn them in.
2 votes
Terry Farnsw…, Agent, Lisle, IL
Tue Feb 14, 2012
Hi Melanie,

I don't know the specifics of your particular situation, nor what is on your GFE or what your lender has already explained to you. I also don't know how taxes are paid in your state, or what the agreement on your contract was regarding this. I'll give some feedback based on my experience in my state:

In Illnois, property taxes are paid in arrears. Because of this, sellers generally give a credit at closing for the past year's taxes, plus a prorated amount for the time preceding the closing date in 2012. Depending on your situation (which again I do not know), I'm guessing that you aren't factoring in the credit that you may be receiving at closing, that should offset a substantial portion of those charges.

The GFE generally never includes the down payment amount - however you might notice that somewhere in the packet you'll se a disclaimer something to the effect of "settlement charges are not an estimate of the cash you'll need at closing". Also, I have found, this estimate is usually on the "high" side - to prevent big surprises at closing.

Again, please sit down and talk with your lender - as I don't have the specifics on your situation. Have them explain every line on the GFE in detail. Hope that helps!
1 vote
Lance King, Agent, San Francisco, CA
Tue Feb 14, 2012

The original estimates are almost always ridiculously high. Perfect example: on our most recent purchase of a property in Pac Hts, part of the estimate included transfer tax (over $10K) which the seller always pays here in San Francisco. Lender response: essentially they throw everything but the kitchen sink in on the front end. They seem to do this with everyone, so I don't know why they even call it a good faith estimate because it has nothing to do with reality. Once we got the estimated closing statement the costs were accurate.

However, if you are getting an estimate mid stream that is higher you have an issue. It could be a mistake - talk with your loan officer and go from there.
1 vote
Thom Colby, Agent, Irvine, CA
Tue Feb 14, 2012
Congratulations on your new home purchase - this is both an exciting and a nerve-wracking time. There are so many variables without knowing your exact situation it's tough to determine what is correct - however, just chat with your lender and/or your Realtor and they can explain everything.

You should have a GFE and an estimated HUD. On page 1 of the HUD at the very bottom - typically Line 303 - the Total amount of cash you need to bring should show.

Best of luck -
1 vote
, ,
Thu Feb 16, 2012
On that mortgage if I were locking it this morning your total funds to close if your credit score is between 640-680 is $24549 which includes a full month's payment. So if you closed it at the end of the Feb 28 the amount needed is $23,076.

If your score is 680 or better I could probably close the loan with $20367.

This numbers include the down payment requirement of $17325.

I hope that helps. You should know that I am using my own company figures and on FHA loans we pretty much are the best out there, we are clearly much less expensive. It sounds like they made a mistake on the figures, I am confused though as it sounds like the still do not have them correct. If you are getting a rebate where are all of the other costs coming from?
0 votes
Debbie Brown, Agent, Laguna Beach, CA
Tue Feb 14, 2012
At the end of the GFE there should be - Cash due at closing - line. It should be very clear what will be due and should have been made clear from the start. Also if something changed in the process that made the 13k go up to 20k, your loan person is required to let you know right away. Last minute surprises are never good when buying a home or obtaining a loan.
It does sound as though it is included, unless you are being charged an arm and two legs to get this loan.

I hope this was helpful and I wish your family the best in your new home.

Debbie Brown
Orange County Real Estate Group
0 votes
Bob Willett, , Sacramento, CA
Tue Feb 14, 2012

I so sorry that you are confused by all this, but it is understandable. The truth is a real estate sale is really as many as ten or more different transactions all happening at different times within the escrow period. Making sense of all of this is difficult – but not impossible. It takes two things; First, you need to take the time to sit down with your lender and have them go through a detailed explanation of your transaction. The second thing is an experienced loan officer who will spend the time to make sure you fully understand all of the costs involved, which can vary and why, and which are fixed. I good lender will do this up-front, and any time something changes.

Jim and George are correct that you should really have done this early in the transaction. In fact, I think it should be the first thing you do – even before you find a property to buy. The problem is what many lenders will do is go ahead and issue the GFE but not go over it – or anything else! If the forms being signed are not explained there is really no way to begin to understand what will be happening.

Terry is correct that the down payment is not on the GFE, and Lance is also correct that the initial GFE is almost always a very high estimate of the closing costs. Grant did a great job of explaining what things a lender needs to have in order to have “an application,” and he is also correct in saying that this must be issued within three days of having all of the aforementioned items. Basically these posters have down a great job of explaining what a GFE is, when it has to be done, etc.

BUT, nobody really addressed your question – probably because nobody wants to talk about the giant white elephant in the room. The fact is the GFE is very confusing and does a really poor job of explaining what to expect. This document was developed by HUD with input from lots of consumer groups, and is designed to hold lenders accountable for the estimates they provide. The mortgage industry tried to give input, but frankly we were seen as the problem that this document was supposed to fix, so out input fell on deaf ears. (There is a lot of truth to this assumption.) The problem with this approach was that none of these people had ever had to explain the very complicated series of transaction to a homebuyer, so the document does a poor job of showing the buyer what to expect. There is no place for the down payment, the total payment is not shown in one place (so the borrower has to find the elements of the payment in several different places and add them up on their own,) and no place on the document does it show how much money will be needed. It doesn’t’ even explain what costs are paid by the buyer and what costs will be paid by the seller. Then just to make it more exciting, the lender is responsible for the accuracy of most of the items showing – even though the lender has no control over many of these costs because they have no say in who will be providing these services, nor do they negotiate the contract which determines who will be paying what. The result of this is what Lance said – lenders are forced to estimate the highest possible costs because if they are low, they have to pay the difference!

Every experienced lender I know complies with the rules and issues the proper documents within the correct timeframes. However, when it comes to explaining the transaction, they use some other form. It can be called a “Purchase Costs Breakdown,” a Transaction Worksheet,” or whatever term they come up with. Every lender software has its own version of this documents; I have an Excel file that I originally wrote in Lotus 123 over 20 years ago that I think is better than all of them, (but I’m probably biased on that.) Basically what I’m talking about used to be what we called a GFE prior to the government’s version. You see, despite what the government and consumer groups thought, the problem was not the document; the problem was either inexperienced lenders who didn’t know how to put this document together, or dishonest lenders who would leave off fees to make their services appear less expensive – or both.

The good news is that they know that there is a problem and are working on creating a new disclosure which should be much better than the current GFE. There are two versions being floated around, and while I think the both are still too cumbersome, they are both dramatically better than what we have to use now. But for you and your current transaction, have your lender go over their version of what I’m referring to above, and make sure you understand it. Make them answer all your questions. Real Estate transaction are complicated, but you should expect that your lender will break down your transaction so you can understand it thoroughly.
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0 votes
Shadi Kian, Agent, Lake Forest, CA
Tue Feb 14, 2012
By the way Melanie, how come this is coming up this late in the transaction. The Loan Officer can not change the GFE more than 10% only in particular areas!!! Are you sure you have not given a GFE within three days from your original loan application? If not your loan person is in big trouble.
0 votes
Shadi Kian, Agent, Lake Forest, CA
Tue Feb 14, 2012
Hello Melanie;
I don't know how much is your purchase price? FHA are not always 3% down. Are you coming with 3% down? or more?
Also, I don't think your closing cost at 20K does not include your down payment. You might not read the GFE correctly. Reading new GFE is not easy. It's very complicated. Any way I am looking at this scenario, 20K for closing cost with 7K rebate credit should include your down payment balance.
Let me know what is your purchase price and what % down you are coming to this transaction.
Shadi Kian
0 votes
Grant Fawcett, Mortgage Broker Or Lender, Tustin, CA
Tue Feb 14, 2012

Effective July 21, 2011 - RESPA (Real Estate Settlement Procedures Act) - will be administered and enforced by the CFPB (Consumer Financial Protection Bureau).

RESPA is a consumer protection statue that is supposed to help the consumer become better shoppers for real estate settlement closing services.

When borrowers apply for a mortgage - brokers/lenders MUST provide the borrowers a Good Faith Estimate (amongst other things) - A GFE of settlement costs listing the charges to the buyer is likely to pay at settlement.


There are 6 Key points that trigger a GFE - Did your lender have all of this information?

#1. Borrowers name
#2. Borrowers monthly income
#3. Borrowers SS# to obtain credit
#4. Property Address
#5. Estimate of the value of property
#6. Loan Amount

If your broker/lender had all of this information - BY LAW - They must issue a GFE within three business days of receipt. The law was passed so there are NO SURPRISES to the borrower.

If your in a pickle - I'm more than happy to assist - You wouldn't be the first I've helped!

Castle & Cooke Mortgage is owned by chairmain & founder of Dole Foods. We are a blue chip Mortgage Bank. Castle & Cooke is among the top 1% of lenders with FNMA, FHLMC and GNMA approvals. We get it done right the first time. My cell is (949) 212-4578

Best of luck.

Grant Fawcett
Castle & Cooke Mortgage
Cell: (949) 212-4578
NMLS# 832635
0 votes
George Raymo…, Mortgage Broker Or Lender, Fort Worth, TX
Tue Feb 14, 2012
I am a little confused why this is coming up so late in the game. Thee are several checks and balances in the system to help homeowners figure out what they need to close. One sure fire way to know is when your loan file is being ready to submit to the underwriter, the lender or broker is required to have escrow work up an estimated closing statement (HUD I). Yes, generally they are almost always figured too high, but nevertheless it's your best estimate outside the loan officer's GFE. If you have not seem yours, by all means you need to contact escrow and have it sent to you. The escrow officer will be more than happy to go over the settlement charges with you prior to meeting with your LO. I am astounded by some of these closing I ready about and how they shake out. I have learned over the past 23 years in business: Never leave anything to chance, cover your bases and make sure you and your clients are on the same page. This ensures a smooth closing with no surprises. I pray none are sprung on you today.
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