(MONEY Magazine) – When Good-Faith Estimates Go Bad

Q I had a good-faith estimate of $5,114 in fees to refinance my home. But four months later at the closing, surprise! Extra fees drove the cost to nearly $10,000. Can they do this? --Steve Busalacchi, Madison, Wis.

ANSWER Yes and no. One problem was that you didn't read the fine print--but the regulator found another error, and it wasn't yours.

First, you changed your mortgage application midstream. The good-faith estimate for the first one you applied for was fairly straightforward, but then you saw that your broker, Millennium Mortgage, was advertising a different product at a better rate. So you canceled your application and replaced it with a new one--this time applying for a $288,000, 30-year cash-out refi at 4.75%. You were alerted by e-mail that you would have to pay an extra half a point; no problem there. Mission accomplished.

At this point things got sticky: Your new loan had new fees, which you didn't realize. (Here's where fine print comes in.) You now had the lender origination fee, plus a slew of other costs for appraisals, credit reports, insurance and other stuff. The estimate for these new costs--nearly $7,000, thousands more than you were prepared for--was clearly spelled out in your loan documents.

But what wasn't disclosed--this is what got the regulator's radar pinging--were a $2,160 broker's origination fee and some sort of processing fee for $185. Your new total was nearly $10,000, which came as a nasty surprise at what turned out to be a tense closing. You paid the tab rather than lose the favorable interest rate.

Of course, the only way you can know about undisclosed fees is by reading your agreement closely enough to know what was disclosed. Nevertheless, we urged the Wisconsin Department of Finance, your state regulator, to review the details of your complaint--something any citizen can do. The rules, it turns out, are in your favor: Broker-lenders must give borrowers full fee disclosure before the closing, and yours didn't. The state ordered Millennium to reimburse you $2,345 for the two fees. Case disclosed.

TIP

A good-faith estimate isn't binding, but a HUD-1 statement, which shows all fees, is. Ask your settlement agent for yours up to 24 hours before the close. And schedule that close well before the move so you have time to negotiate.

Having a financial nightmare? Need an advocate or some good advice? E-mail Ellen McGirt at money_helps@moneymail.com.

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Learn how to dodge undisclosed fees in an exclusive MONEY investigation at money.com/realestate.

Reporting by Judy Feldman contributed to this article.