- Good faith estimate
A good faith estimate must be provided by a
mortgagelender or brokerin the United Statesto a customer, as required by the Real Estate Settlement Procedures Act( RESPA). The estimate must include an itemized list of fees and costs associated with your loanand must be provided within three business daysof applying for a loan.
These mortgage fees, also called settlement costs or
closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxesand other charges.
A good faith estimate is a standard form which is intended to be used to compare different offers (or
quotes) from different lenders or brokers.
The good faith estimate is only an estimate. The final closing costs may be different – sometimes very different.
Fees and Charges
The fees included within a good faith estimate fall into six basic categories:
*Fees to be paid in advance
The following is a list of the typical charges. Each charge starts with a number – the same number is the number of the charge on a
HUD-1 Real Estate Settlement Statement. This makes it easier to compare the charges you are looking for on your good faith estimate to the HUD-1.
800 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
mortgagerate – the 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
900 ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE
Interestfor 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.
1000 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
prepaymentof 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
1100 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 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.
Good Faith Estimate Analysis/Tools
Column Heading Abbreviations
There are commonly four column heading abbreviations on the far right side of the GFE. They stand for the following:
* PFC = Pre-paid Finance Charge (fees that affect the APR)
* S = Seller Paid
* F = FHA Allowable Fees
* POC = Paid Outside of Closing
Truth in Lending Act
Annual percentage rate
Real estate contract
* [http://efinancedirectory.com/multimedia/Detailed_Explanation_of_the_Lender_Good_Faith_Estimate_Video.html Explanation of a Lender Good Faith Estimate - Video]
* [http://www.hud.gov/offices/hsg/sfh/res/resappc.cfm Sample Good Faith Estimate from HUD]
* [http://www.fdic.gov/regulations/laws/rules/6500-100.html FDIC Laws, Regulations, and Related Acts]
* [http://mortgages-tx.com/~mortgag/mystuff/File/TIL-GFEexplained.pdf Annotated Example GFE]
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