Good faith estimate - An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.Be sure to question any loan agent who lists very few fees on the Good Faith Estimate. Some less than ethical loan agents will not show many fees on the initial Good Faith Estimate. Borrowers think they are getting a loan with very few fees only to be surprised when they see the final closing statement.
Certain fees listed on a Good Faith Estimate are used to calculate your Annual Percentage Rate(APR). These fees are added with the regular interest payments to come up with a total cost. This total is then converted to a percentage(APR) and is considered to be the true cost of borrowing money to purchase or refinance a home.
When you do compare Good Faith Estimates with other offers you have received it is important to compare items that the broker/lender has influence and control over. Line items 900 thru 1200 are often not known in fact until a title company has ordered title history on the property and all interest, insurance, and taxes are thoroughly researched. The loan officer will often attempt to get an estimate of these items generically, but the final itemization of these fees will differ at the closing table.
A good faith estimate will have 4 columns after the dollar amounts listed for each item. The first column is PFC. This means Prepaid Finance Charges and these items affect APR. The next column is an S which means Seller paid (the seller is paying for these items). The next column is an F which means FHA allowable. The last column is POC which stands for Paid Outside of Close. This simply means that the item has already been paid for before closing. An appraisal fee and homeowners insurance premium are 2 typical fees that are paid for upfront outside of close.
The lined items on the GFE have numbers corresponding to the items on the HUD1 Settlement Statements, which is completed by the closing agent at the settlement. A copy of the HUD1 and HUD1A are provided for both the buyer and the seller. The costs on the HUD-1 are actual costs, since the actual figures are now available, as oppose to the estimated costs on the Good Faith Estimate provided by the broker in the initial stage of the loan application.
The line item numbers on the good faith estimate should correspond with with the item numbers on the Hud1 settlement statement you receive at closing.
Always be sure to get a copy of the good faith estimate before you proceed with the mortgage professional you have chosen.
Fees for some standard items, such as appraisal, credit report and title insurance should be almost the same at every lender. The same goes for payments to local governments, such as documentation stamps and recording fees.
A bank or mortgage company may be willing to drop some of the fees if you opt out of a service. For instance, they may overnight documents back and forth for faster approval. If you are not in a hurry, you can ask that the documents be sent by regular mail and the overnight charges be dropped.
Watch out for "junk fees" or additional charges. Most mortgage programs include them, but you should be able to negotiate them down or eliminate them.
Line 911 is the pre-paid interest charge. This number varies on the time of month your loan actually funds. Then it charges interest on your loan from the day it funds until the last day in the month.
Understanding good faith estimates
When you apply for a mortgage, the lender is required to give you a standard form called the good faith estimate of closing costs, the operative word being "estimate."
The good faith estimate is divided into sections of similar fees, each denoted by a range of numbers: the 800s, 900s, 1000s, 1100s, 1200s and 1300s. For comparison-shopping, the most important fees are the ones listed in the 800s. Most of these items are controlled by the lender or broker, so the estimates should be accurate. A few of the items in the 800 series are charged by third parties, and the lender shouldn't be far off in those estimates.
The lender or broker has direct control over origination and discount points and fees (801 and 802) and administrative, underwriting, processing, funding, document prep, wire transfer and other fees (810 and higher).
Third-party fees in the 800s include the appraisal, credit report, inspection, mortgage insurance application, assumption, tax service and flood certification. These fees are supposed to be passed along to you without markup. Some national mortgage lenders own subsidiaries that perform these functions, so they have a good handle on what the costs will be. You should expect smaller lenders and brokers to estimate these fees fairly accurately, even though they don't own subsidiaries that offer the services.
Fees in the 1300 series -- for surveys and pest inspections -- should be easy for lenders to estimate accurately, too.
The 900s and 1000s cover prepaid items -- mortgage, hazard and flood insurance premiums, mortgage interest and taxes that must be paid up front or deposited in an escrow account.
The 1100s comprise title charges: title insurance premiums, settlement or escrow fees, attorney and notary fees.
Items in the 1200 series consist of government charges such as city and county tax stamps and recording fees.
All the charges from the 900 series to the 1200 series are difficult to estimate. Some of the prepaid amounts vary depending on the date of closing: You would have to prepay a full month's interest if you closed on the first of the month, but not if you closed on the last day of the month.
The Good Faith Estimate is designed to give you the ability to shop and compare the fees of one loan to the fees of the next, so you can make an informed decision based on the cost of the loan.
The GFE by itself is not the best way to compare loan programs. You will need to look at the TIL or Truth in Lending to make a good comparison of the different loan programs you are looking into. The TIL calculates the true cost of your loan because it factors in other fees along with the interest rate.
Required by federal law, a Good Faith Estimate (GFE) is a written list of the estimated closing costs associated with a mortgage transaction, including the lender's charges along with the local closing agent's charges and fees. It also includes estimated amounts for real estate property tax and homeowner's insurance.
Good Faith Estimate - A document detailing a list of charges that the borrower will likely be required to pay at closing. The lender must supply this estimate within three days after application is made.
It is a federal law that your Good Faith Estimate is sent to you within 3 days of applying for a loan. This only means it has to be sent within 3 days, not received.
Many consumers get confused and believe that the Good Faith Estimate is an actual approval. This estimate is one of the very first steps in the process and is not an approval from your lender.
When comparing several Good Faith Estimates from different lenders, pay close attention to items with extraordinary high or exceptionally low estimate amounts. Some unscrupulous loan officers purposely omit certain costs to entice home buyers.
The reason it's called a good faith estimate is because it exactly that - an estimate of the charges that will be on the settlement statement when you close. Although its an estimate a good broker will be pretty close providing there are not last minute collections or anything else that might show up on your credit report that need to be paid off.
Fees checked as Pre Paid Fiancés Charges (PFC) will affect the final APR on your mortgage.
It is important to note that Final Settlement Costs are not known with certainty until the closing, upon receipt of the final HUD-1
The rate and charges on GFE may very from lender to lender, it is often a good idea to review the GFE along with the Truth N Lendings. One lenders name for a fee may not be the same.
The Good Faith Estimate or GFE is accompanied in most cases by the Truth in Lending statement, or TIL, which estimates the APR.
Understanding a Good Faith Estimate - The GFE, short for Good Faith Estimate, shows the interest rate, term, loan amount, and all settlement costs on a particular loan. The items on the GFE can be divided into three major groups: Interest rate and points, fixed-dollar loan fees, and third-party charges. A dishonest loan provider can manipulate all of these figures. There is no legal liability for errors on the GFE.
Sometimes the fees listed on the Good Faith Estimate can change before closing. Some reasons include-
- your mortgage broker may have to submit your loan application to a different lender, either to get a better rate or because the underwriter at the first lender didn't approve your loan. Different lenders have different fees
- if your appraisal is sent to appraisal review by the lender, some lenders charge a fee for that
- you decide to use a different loan program or a different loan amount
- you close earlier or later in the month than estimated
- you decide to use a different home owner's insurance company, policy, or deductible amount
Generally, other fees may vary a little as they are estimates (such as courier fees, which will rise as more packages are sent), but they should be pretty close.
On the GFE (Good Faith Estimate) you will notice some letters at the end of line 800: PFC, S, F, POC. PFC means Prepaid finance charge. These are the charges that are associated with calculating APR. S means Seller Paid. These are items that the seller will be paying at closing. The F means FHA allowable. These items are permitted by FHA. Lastly the POC stands for Paid Outside of Close. This means that these items will be paid for, generally, before close. Some common items that are paid outside of close would be appraisal fees, homeowners insurance premiums and homeowners association dues. On some GFE's these letters may simply be filled in after the dollar amounts of each fee.
Have each mortgage professional go over the Good Faith Estimates with you. Compare the items line by line. If you notice the cost of any item on a GFE significantly higher or lower than that of the same item on other GFE's, ask the loan officer to explain the difference. Some dishonest loan officers might "low ball" their settlement costs to gain your business.
Federal law requires lenders and brokers to provide a written good faith estimate within three days after taking an application from a borrower.
In California, the Good Faith Estimate is also called the MLDS or Mortgage Loan Disclosure Statement, when produced by a mortgage broker rather than the direct lender. The statement will itemize which costs are from the broker and which are from other parties.
It is important to keep a copy of the original GFE your are shown, to compare it to the final closing statement before you sign your loan documents.
Items checked as pre paid (PFC) finance charges will affect the final APR of your mortgage.
The 800 section of the GFE is what the lender, broker, appraisal fees are. These are the fees you will want to compare with different lenders and brokers. the 900, 1000, 1100, 1200, & 1300 are all third party fees. The 1100 section are the fees charged by the title company.
Is the good faith estimate accurate? - The Good Faith Estimate is a disclosure of all of the costs that are associated with the settlement of your mortgage loan. Loan officers are required to provide you with a good faith estimate within three days of applying for a mortgage loan.
Most loan officers will do their level best to make sure that the good faith estimate they provide will be accurate. Some will even guarantee the amount. If the amount increases from what they quote, then they will eat the cost out of their own paycheck.
Always read everything you are handed with a fine tooth comb. Even mortgage professionals can make mistakes. Never be shy and always speak up if you are feeling uncomfortable about something. Remember, this is your loan.
Many mortgage consumers make the mistake of thinking the estimate is set in stone. There are simply too many numbers that will be juggled around throughout the loan process to know for certain what your costs will be. Most often the exact amount isn’t known until days or even hours before closing.
Some unethical companies may deliberately mislead you on your Good Faith Estimate. They may show a rate or fees that vary drastically from the actual terms that show up on your loan documents. Or, they may provide you with disclosures that show you are getting a 30 year fixed loan, but the loan documents will be for an adjustable mortgage. They will do this because they figure that by the time you get to the signing table, you'll be so anxious to close your loan that you'll just sign anyway. This is sometimes referred to as a "table close". If a company tries to do this to you, you should not sign anything that you're not comfortable with. Don't be afraid to walk away. There are always other options. Just as in any industry, some people don't have your best interests in mind.
If the parameters of your loan change during processing, ask your mortgage professional for a revised good faith estimate reflecting the changes. While they are obligated to do so anyway, this requirement may be overlooked.
The good faith estimate is just that, and estimate. The mortgage professional may need to increase your loan amount to cover certain costs associated with your loan. Your current payoff could come in higher than expected, and this will certainly change the GFE. It is not set in stone, until you sign the final HUD settlement statement at the closing table. Although it is not set in stone, it should not vary drastically from the original that you signed, and you should keep that in mind at the closing table.
Fees Listed On Good Faith Estimate - Mortgage Applicants should understand each fee on a Good Faith Estimate and who will be receiving this fee. Borrowers that understand each fee may be able to save money on their closing costs. Listed below are fees listed on the Good Faith Estimate and their descriptions.
The Loan Discount Fee is the amount a borrower pays to have the interest rate on their mortgage lowered. It is usually known as buying down points. For example, a lender may allow a borrower to lower their interest rate 7% to 6.5% if they pay a point which is equal to 1% of the loan amount. This fee should be looked at when comparing loans from different lenders because with one lender you may be paying for a lower rate while another lender may give you the same rate without the loan discount fee.
The Title Insurance fee listed on your GFE is a policy ensuring that there will be clear title to the property and home following the close of the transaction.
Not all lenders list their fees the same. Make sure to compare more then just the origination fees. Often lenders will increase other fees in order to make up for an origination point.
Escrow, title and lender fees are third-party fees. If the mortgage is a purchase money loan, escrow and title will most likely be chosen by the seller. These fees are somewhat negotiable. If the fees for these services seem high, your loan consultant may be able to negotiate a lesser charge
A couple of the items listed in the Estimated Reserves/Prepaid Costs section represent the funds that will be collected to establish your escrow account for your property tax and homeowners insurance. Your first years homeowners insurance premium is also listed as you will typically need to pay for it prior to closing. The line listing prepaid interest will vary depending on what day of the month you close. Interest will need to be collected from the closing date thru the end of the month.
In some states it is customary to use lawyers to handle real estate transactions. The buyer's attorney represents the buyer and the seller's attorney works to protect the seller. The bank also has its closing attorney to look after its interests. The cost of hiring the bank attorney is paid by the loan applicant, and it is listed as Attorney Fees under Title Charges on the Good Faith Estimate.
Loan Origination Fee: This fee is charged by your Mortgage Broker or Loan Officer for preparing your loan application to be submitted to a lender. Preparing your loan application a Broker or Loan Officer must analyze an applicant’s needs, job history, income, credit history, and property information. This information will then be utilized to match borrowers with a Lender and/or loan program.
Appraisal Fee: Most appraisers require this cost to be paid up-front. The fee generally ranges from $300-$600 depending on the value of the property, type of property, etc. This will often be listed on the GFE and the HUD, but will be shown to have already been paid by you. Sometimes, the appraiser will take this payment out of escrow. In addition, some brokers will either refund the cost to you at close of escrow or cover the cost initially and charge you out of escrow.
When looking over the fees on a GFE, Good Faith Estimate, make sure that you compare the total closing costs to each other and not just each line item because each lender charges fees differently from the next lender. The main place that you will want to pay attention to, besides the total fees, is at the escrow account and pre-paid item section. These numbers will be the same no matter what lender you use, however some lenders may not put the escrow account information on the GFE. Look not at the total settlement charges but at the total closing costs minus prepays and escrows to be able to compare apples to apples.
Good Faith Estimate Defined - Loan Officers are required to send a Good Faith Estimate to their clients as part of their pre disclosures. The Good Faith Estimate will have a line by line description of all finance charges associated with the loan. The Origination Fee is the fee your Loan Officer is charging to originate your loan.
When looking at your GFE look to see that the lender/broker has included what the title company will be charging. Though your lender/broker is not able to waive these charges they may be able to marginally influence the charges. One item that is not negotiable is the title insurance. This is usually divided into two parts, lender's insurance & owner's insurance.
Other charges can be Loan Discount or Loan Discount Point. This is most commonly referred to as "Points". It is the cost of buying down the rate to reduce your overall monthly payment. The more you pay to buy down the interest rate, the less you will have to pay on the overall interest on the life of the loan. Some loans will have no points and some may have a required cost due to the particulars of the loan.
If an escrow account is going to be setup for you (this is usually a good idea for new homebuyers and those who have a harder time setting money aside for later) then look in the section for Reserves Deposited with the Lender. Depending upon your state you will have anywhere from 2-8 months of reserves that are included that will be held by the lender for your escrow account. The two items held in reserves are your home owner's insurance and your property taxes.
Another item located on the Good Faith Estimate is Government Recording and Transfer Charges. These are the taxes that most jurisdictions include to get their fair share. On a purchase the taxes, stamps and recording fees are usually split between the seller and buyer. On a refinance, the taxes fall solely on the homeowner. Make sure this area is completed so it does not come as a surprise down the road.
Another form that is often used in replacement of the Good Faith Estimate is the MLDS. Mortgage Loan Disclosure Statement.
Just remember when looking at the Good Faith Estimate there will be Estimated Closing Costs and Estimated Prepaid Items. The prepaid items (escrow monies, taxes, etc.) are mandatory collections. The Closing Costs are what should be looked at attempt a true apples to apples comparison.
The Good Faith Estimate is often the first from that will disclose many of the most important aspects of your loan. The law requires your good faith estimate be provided by your lender or broker no later than 3 days from the receipt of your complete application. Be sure to carefully examine the interest rate, term, monthly payment, and amount due at closing to ensure the loan you are applying for is what you think it is.
When can I see my Good Faith Estimate? - Many states require that certain disclosures, including the Good Faith Estimate, be mailed within 2 hrs of taking the application if its a refinance. On a purchase its required, again in some states, within 72 hrs of an accepted sales contract on a subject property.
The Good Faith Estimate is just that, an estimate, and is subject to change.
Keep in mind that this is just an estimate. When shopping for a new loan, always keep in mind that this may not be what your final loan will end up as. Some lenders will write almost anything on a GFE just to get your business.
When you receive a Good Faith Estimate be sure to go over it carefully. You should understand all the charges and fees on the Estimate. If anything does not look right contact your Mortgage Consultant immediately and discuss it with them.
Good Faith Estimate - "What is a good faith estimate? Will that be my total costs at the closing table?"
A GFE (Good Faith Estimate) provides a break down all the fees that you will have to pay as a borrower at time of close. These fees can all be explained to you by your mortgage professional
The fees on the Good Faith Estimate are just that an estimate and can change. Although a good mortgage professional should be able to quote fee's quite accurately. Always compare the final Good Faith Estimate you sign at close with the estimate you signed with your mortgage broker when you applied.
For an accurate Good Faith Estimate, you should provide your loan officer with all of the requested income, asset, and liability documentation. If you fail to include some documentation then the terms listed on the good faith estimate are subject to changing.
One of the things that can cause the estimated charges to change is the date of the closing. If you close before the estimated date, there will be more interest to pay.
Remember a good faith estimate is just that, an estimate, and variations from the good faith estimate to the final closing documents can be explained clearly and plainly by your loan officer.
In 1974, the Department of Housing and Urban Development (HUD) enacted the Real Estate Settlement Act (RESPA). RESPA requires mortgage brokers and lenders to give home buyer a Good Faith Estimate of the closing costs. This estimate must be provided within three business days of when the loan application is taken. This estimate is a list of fees involved with you loan. Note: these numbers are not set in stone, they are an estimate but should be close to actual fees.
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