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Good Faith Estimates – Explained
How to understand these, and save
money (sometimes enough to buy a car!)
A Good Faith Estimate (GFE) is something
that you are to receive within 3 days of a mortgage application. These are
standard forms, so they are intended to be used to compare different offers (or
quotes) from different lenders or brokers.
The GFE lists an estimate of what the
total costs will be to get your mortgage. It is a long list, and the charges can
be confusing.
The key thing to remember is that it is
only an estimate. Your final costs may be different – sometimes very
different.
These quick explanations will help you
understand many of these costs, and how you can save on them. Keep in mind that
some lenders or brokers add their own custom fees to the GFE.
The fees come in these basic categories:
- Loan fees
- Fees to be paid in advance
- Reserves
- Title charges
- Government charges
- Additional charges
The following is a list of the typical
charges, with advice on how to lower this if you can. Each charge starts with a
number – the same number is the number of the charge on your GFE. This makes it
easier to find the charges you are looking for on your GFE.
ITEMS PAYABLE IN CONNECTION WITH LOAN:
- 801 - Loan Origination Fee
- This fee is a charge for
originating or creating the loan
- 802 - Loan Discount
- This is an upfront charge paid
to the lender to get a lower interest rate – same as “buying the rate
down”
- 803 - Appraisal Fee
- This is the cost of the
independent appraisal. It is usually paid by the buyer
- 804 - Credit Report
- 805 - Lender's Inspection Fee
- This is the lender’s cost of
inspecting a property – some may double check the appraisal provided by
an independent appraiser
- 808 - Mortgage Broker Fee
- This is the upfront charge that
a mortgage broker charges. Brokers can also earn a “rebate” from the
lender which is not listed here
- 809 - Tax Related Service Fee
- Lender fee, usually small, for
handling tax related matters
- 810 - Processing Fee
- This is the charge for
processing the loan – collecting your application, running credit,
collecting pay stubs, bank statements, ordering appraisal, title, etc.
- 811 - Underwriting Fee
- This is the cost of the loan
underwriter (approver)
- 812 - Wire Transfer Fee
- This is the cost of wiring the
money around, which is usually done by escrow
ITEMS REQUIRED BY LENDER TO BE PAID IN
ADVANCE
- 901 - Interest for days X $
per day
- This is your prepaid interest
for your mortgage loan
- 902 - Mortgage Insurance Premium
- This is the prepaid mortgage
insurance premium, if you have one. This is the insurance premium some
lenders charge for loans with little equity
- 903 - Hazard Insurance Premium
- This is your home’s hazard
insurance being prepaid
- 905 - VA Funding Fee
- This is the Veterans
Administration funding fee, which is something you will not incur unless
you go through a VA program
RESERVES DEPOSITED WITH LENDER
- 1001 - Hazard Insurance Premiums
# months @ $ per month
- This is any prepayment of your
future hazard insurance expense
- 1002 - Mortgage Ins. Premium
Reserves months @ $ per month
- This is any prepayment of your
future mortgage insurance expense
- 1003 - School Tax months @ $
per month
- This is any prepayment of your
future school tax expense
- 1004 - Taxes and Assessment
Reserves months @ $ per month
- This is any prepayment of your
future tax expenses, such as property taxes
- 1005 - Flood Insurance
Reserves months @ $ per month months
- This is any prepayment of your
future flood insurance expense
TITLE CHARGES:
- 1101 - Closing or Escrow
Fee
- This is the cost of escrow.
This is the service of a neutral party that actually handles the money
between all the different parties in a real estate transaction,
including: the lender, the buyer, the seller, the agents, notary, etc.
This is often times done by the “Title Company” – a related entity in
the same office that provides title insurance
- 1105 - Document Preparation Fee
- This is the charge for
preparing the loan documents. Lenders often email the loan documents to
the escrow company, which in turn prints them out and reviews them
before signing
- 1106 - Notary Fees
- This is the cost of the notary.
This is to have all of the legal documents surrounding this transaction
notarized
- 1107 - Attorney Fees
- 1108 - Title Insurance
- This is the cost of insuring
the title of the property. If there is a question about title (who
really owned the property), after the transaction is done then this
insurance protects the lender from future problems
1200 GOVERNMENT RECORDING & TRANSFER
CHARGES
- 1201 - Recording Fees
- This is the cost of updating
relevant government records
- 1202 - City/County Tax/Stamps
- Unavoidable government charge
- 1203 - State Tax/Stamps
- Unavoidable government charge
1300 ADDITIONAL SETTLEMENT CHARGES:
- 1302 - Pest Inspection
- This is the cost of the pest
inspector. Their purpose is to document the state of the property that
the lender is making the loan on
- Others charges
- These can be additional charges
that change within different loan sources
- Pay particular attention to
these charges, but they can also be listed in other sections
Saving on your expenses
The expenses are in three different
categories:
- Fixed – government charges
- Slightly variable but small –
escrow, notary, pest inspector, appraiser
- Highly variable – loan fees
The biggest expenses are usually in the
loan fee section. This is where you need to focus to try to get a good deal.
Compare the GFE’s you receive from
different lenders. Keep in mind that these GFE’s are only estimates. They can
change, and sometimes become unpleasant last minute surprises.
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