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 good faith estimate lists an estimate of what the total closing 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 closing costs may be different – sometimes very different.

These quick explanations will help you understand many of these closing costs, and how you can save on them. Keep in mind that some lenders or brokers add their own custom fees to the good faith estimate.

The fees on a good faith mortgage estimate 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 good faith estimate. This makes it easier to find the charges you are looking for on your good faith estimate.

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 mortgage 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

  Home Equity Loans

• 804 - Credit Report

  • This is the cost of the 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

  Low-Rate Mortgage & Home Equity Loans

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

  • Any legal charges

   

• 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 good faith mortgage estimate 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 good faith estimates you receive from different lenders. Keep in mind that these good faith estimate’s are only estimates. They can change, and sometimes become unpleasant last minute surprises.