Good Faith Estimates - Explained
How to understand these, and save money (sometimes enough to buy
a car!)
by Ben Afzal
From the Archerpacific.com Loan Library
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 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
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 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.
For more information visit www.archerpacific.com Loan
Library
About the author:
The author is the owner of Archer Pacific, a mortgage company.
The firm's website, www.archerpacific.com, has extensive
resources and tips on many mortgage topics.
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