In October 2015, TRID — the TILA-RESPA Integrated Disclosure rule, or “Know Before You Owe” — was implemented to make the lending and mortgage process more transparent and easier to understand for consumers.
Although the rule has mainly achieved its goal, there are still some parts of the buying process that remain a bit of a mystery to buyers.
What’s surprising buyers at the closing table?
ClosingCorp, a provider of residential real estate closing cost data, released its latest survey, which shows buyers still need more education when it comes to the fees associated with closing on a home.
The study was conducted by Wilson Perkin Allens Opinion Research between January 2 and 5, 2017, and it included responses from 1,000 homeowners who had bought their home in the past 12 months.
According to the research, 35 percent of buyers were surprised their final closing costs were higher than originally estimated. Furthermore, 17 percent were blindsided by the fact closing costs and fees were even expected.
For those who were taken aback about the closing costs, these five items surprised them the most:
- Mortgage insurance (24 percent)
- Bank fee/points (23 percent)
- Taxes (22 percent)
- Title insurance (21 percent)
- Appraisal fees (20 percent) and fees paid by the buyer vs. seller (20 percent)
Why the surprise?
At least part of the surprise from some of these fees were due to the fact that 52 percent of lenders were “off” on their initial home loan estimates.
The most closing cost discrepancies were seen in those buying homes in the $1,000,000+ (58 percent) and $500,000 to $1,000,000 (57 percent) ranges.
The no. 1 and no. 2 reasons for closing cost discrepancies were changes to the loan based on what the buyer qualified for (31 percent) and inaccurate lender estimates (27 percent). In 23 percent of discrepancies, buyers requested a change to the loan.
Finally, 58 percent of homebuyers received a revised estimate prior to closing on the home due to amended initial fee estimates, which include changed:
- Closing costs (12 percent)
- Insurance costs (6 percent)
- Taxes (5 percent)
- Title (4 percent)
- Mortgage/monthly costs (4 percent)
- Escrow (4 percent)
- Appraisal fees (3 percent)
- Utilities (3 percent)
- Brokers fees (3 percent)
Bob Jennings, the chief executive officer of ClosingCorp, said the survey should serve as a reminder to Realtors to fully educate their buyers about each step of the closing process.
“As more and more millennials become first-time homebuyers, TRID or Know Before You Owe has made it easier for them to understand the costs and fees they’ll face at closing. Yet there are still surprises during the closing process,” said Jennings in a statement.
“Lenders and Realtors need to keep educating borrowers on the costs and fees associated with closing to alleviate surprises,” he added.