The housing market in the United States is starting to show signs of improvement. Mortgage rates remain low. New construction is picking up. And the Consumer Financial Protection Bureau issued guidelines last week aimed at protecting consumers from the types of mortgages — like the ones that offered deceptive teaser rates or required no documentation from borrowers — that contributed to the financial crash.
But there are still many ways that buyers or investors can end up paying more than they should. And many of them are so embedded in the mortgage documents — and the mortgage rate itself — that consumers have to be vigilant to find them. That is especially true when buyers rush into a deal and do not take the time to make sure they are not paying thousands of dollars extra in closing costs and tens, if not hundreds, of thousands of dollars more over the life of a loan.
"People today are less concerned with pricing," said Joe Parsons, a loan officer at PFS Funding in Dublin, Calif. "They're more concerned about, 'Can you get my deal done?' There are so many more moving parts."
Joseph Wilbur, for instance, signed a contract to buy a co-op apartment in Astoria, Queens, in March 2012 and made it clear that he wanted to close quickly because he and his fiance were getting married in August. Mr. Wilbur said the mortgage broker told him that would not be a problem.
The couple finally had their closing on Dec. 13, after spending the first few months of their marriage living with his parents. A few days before closing, Mr. Wilbur said the broker gave him a good-faith estimate — the basic information about the terms of the mortgage and the estimated costs of the loan — that he should have had at the start. Shortly after that, he got the HUD-1 statement, which formalizes the closing costs.
"It became clear early on that the guy wasn't all that knowledgeable about mortgages for co-ops," he said. "He made a whole bunch of mistakes."
But Mr. Wilbur pressed on because he wanted to close and did not want to lose the apartment. "As much as I was concerned that I hadn't seen something that was telling me I was paying thousands more than I had expected, I just wanted to get through with this," he said. "The fact that my wife and I were getting married shortly was more of an issue. I didn't have time to start with a new bank and the whole application process."
Mr. Wilbur's story may be a worst-case situation. But what should buyers be aware of and how can they avoid feeling cheated?
Many buyers think the good-faith estimate is the cornerstone the mortgage process. It estimates the costs, like inspections and title insurance, buyers pay to close on a mortgage. But Mr. Parsons said the document did more to hide fees than illuminate them.
"It's essentially a useless document for the consumer," he said. "It lumps a lot of costs into the figures that are carried onto the good-faith estimate rather than itemizing them."
Rick Allen, chief operating officer of MortgageMarvel.com, a Web site that allows consumers to search for different mortgages, ran three sets of closing costs in the first week of January for the same mortgage in the New York area and got three different good-faith estimates.
The estimates for closing costs on a $300,000 house with a 30-year mortgage at a rate of 3.5 percent were between $6,911.78 and $9,742.97. The biggest differences were the origination fee the bank charged, the discount the bank gave — or did not give — for the particular interest rate and the cost of title insurance from a third party. The origination fee and the mortgage credit vary because they are one of the ways the lender makes money from the loan.
"The reality is the consumer needs to do lots of homework," Mr. Allen said. "The government would say that you need to apply with multiple lenders and get multiple good-faith estimates. But providing an application is not always a painless process."
He said MortgageMarvel.com offers a guarantee on the closing costs within $50. But borrowers would still have to compare various lenders to know that they were getting the best estimate.
Of course, most people don't do that. Elizabeth Safran, who owns her own public relations company in New York, said she asked a friend in her apartment building whom he had used.
"My main criteria for refinancing was to bake the closing costs into the loan so there would be no cash out of pocket," she said.