If closing costs are greater than what was estimated, how is this situation categorized?

When closing costs exceed the amount that was originally estimated in the loan disclosures, it is categorized as "not made in good faith." This is primarily because the requirement under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) is for lenders to provide accurate estimates of closing costs to borrowers. If the actual closing costs significantly surpass what was disclosed, it signals that the lender may not have acted in good faith, which can lead to compliance issues or penalties.

In this context, good faith refers to the lender's obligation to provide borrowers with truthful and transparent information regarding the costs associated with their mortgage loan. A failure to adhere to this obligation can diminish consumer trust and potentially result in legal ramifications for the lender. Understanding what constitutes good faith is crucial for mortgage professionals in ensuring regulatory compliance and fostering positive relationships with clients.