Settlement, Closing Costs and RESPA
What the exam tests
Settlement, Closing Costs and RESPA tests the closing process, cost allocations, prorations, and federal disclosure rules. Questions often ask which charges appear on the Closing Disclosure and which RESPA practices are prohibited.
Core rules
- The Loan Estimate must be delivered within three business days of application; the Closing Disclosure must be received at least three business days before consummation.
- Changed circumstances may permit revised disclosures; certain fee increases require a new three-day review.
- RESPA Section 8 prohibits kickbacks and unearned fees for settlement services; Section 9 prohibits sellers from requiring title insurance from a particular company; Section 10 limits escrow deposits.
- Closing costs include lender fees, title insurance, recording, transfer taxes, prepaid interest, and escrow reserves; buyer and seller credits must be itemized.
- Prorations divide taxes, rent, and association fees as of closing; Pennsylvania realty transfer tax is typically split by custom or contract.
Worked example
A buyer’s Closing Disclosure shows a $1,200 increase in the lender’s origination fee after the Loan Estimate. Because the fee exceeds the allowed tolerance and no valid changed circumstance applies, the lender must cure the difference and provide a corrected Closing Disclosure with a new three-business-day review. The buyer should not sign until the review period runs.
Traps that cost marks
Do not confuse the Loan Estimate with the Closing Disclosure. Do not assume all fee increases are curable. Do not treat a seller concession as reducing the contract price. Do not overlook prorations and transfer-tax allocations when calculating cash to close.