The NEW Good Faith
The OLD Good Faith Estimate Explained
GFE fees quick links:
Appraisal Home Inspection Survey Origination Charge Discount Points Prepaids Title/ Escrow Fees Recording Government Taxes
Please note: As of January 1, 2010, once you receive your good faith estimate, the cost of your loan is locked in. The cost may come in lower, but cannot be higher. This is a wonderful improvement to the current environment which enables lenders to "bait and switch" borrowers and charge higher fees than disclosed. Also, it enables you as the consumer to comparison shop with confidence.
I would welcome the opportunity to provide an honest estimate to you for your transaction. Please fill out my quick quote form >>>
Appraisal Fee: An appraisal is necessary on the home you are purchasing. Appraisals typically cost between $350-$425, and is one cost that you will incur prior to closing.
Home Inspection: Although a home inspection is not required by the lender, it is highly recommended to get the home you are purchasing inspected so you know about any potential problems before you buy the home. It is customary also to ask the seller to cover some of the expenses for the most important inspection items that come up on the home inspection either by having the repairs done prior to closing or offering monetary compensation to get the work done after closing.
Survey: In some states, it is required to obtain a new survey on the property or obtain an "improvement location certificate" which is similar to an update of a prior survey. In most states, a prior survey is sufficient with certification from the seller and title company that no changes have been made to the property since the survey was done.
Origination Charge: This is one of the items that will appear on your good faith estimate. The origination charge includes the broker's fee, credit report fees, lender underwriting fees, and processing fees. Essentially, any charges that come from your lender are lumped into this figure.
Discount Points: Discount points are a credit to you and are based on the interest rate that is locked in. This amount is deducted from your origination charge to arrive a net cost of obtaining your loan.
Prepaids: "Prepaids" are a general term that refers to mortgage interest, property taxes, and homeowner's insurance amounts that are collected at closing in advance of when they are due. For example, the entire first year's homeowner's insurance premium must be paid in advance at closing on a home you are purchasing.
Title/ Escrow Fees: This is a lump-sum fee that entails all charges associated with insuring your home's title and handling the closing process.
Recording: Cost associated with recording your deed with the county.
Government Taxes: Some states have government taxes associated with buying or refinancing a home. Some of this cost may be incurred by the seller.
The OLD Good Faith Estimate Explained
Understanding Mortgage Fees, Charges, and Costs
The Good Faith Estimate can be one of the most confusing and frustrating documents you will receive during the mortgage process. Fortunately, by reading this guide, it doesn’t have to be.
There are many charges and fees that you will see on your good faith estimate. Some of them may appear to be “junk fees,” and in some cases they are. This is because the good faith estimate is simply that- an estimate. Dishonest mortgage brokers will use this subtle gray area to low ball fees or pad their commissions with true junk fees. A junk fee is a fee that the broker charges that is not for any type of service related to the mortgage process or third party service.
Here is a summary of fees that you may see on your good faith estimate and what they mean. Third party fees, or fees related to other companies that provide services during the real estate process but are not the mortgage company, are italicized. Any third party fee must, by law, be the exact amount the third party service provider charged.
Items Payable in Connection With Loan:
Origination Fee: This is a fee that the broker or bank charges for their services. The origination fee can also be referred to as points. You should have the option of paying the broker directly through an origination fee or accepting a higher interest rate in lieu of the origination fee. The origination fee can be expressed as a percentage of the loan amount (points) or a flat dollar amount.
Discount Fee: Also referred to as points, a discount fee may be charged to help the borrower secure a lower interest rate. See Points vs No Points on this website.
Appraisal: Fee charged by the appraiser to determine the value of your home. Many times, the appraiser prefers to be paid directly when they do the appraisal. Some mortgage companies may also collect this fee up front and pay the appraiser directly.
Credit Report: Cost of pulling your credit file to determine qualification for the mortgage.
Lender’s Inspection Fee: This is one of the most common “junk fees” you will find.
Mortgage Broker Fee: A fee charged by the mortgage broker for his or her services.
Tax Related Service Fee: A fee charged to certify that taxes are paid up on the property, how much is due, and when taxes are due
Processing Fee: The processor is the person who prepares your file for submission to underwriting. The processor also performs duties related to verifying employment, and other items from your mortgage application. This fee is related to paying the processor for their services.
Underwriting Fee: This fee is charged for the service of underwriting your loan. The underwriter is the person who makes a decision as to whether you are officially approved or not and makes sure that your profile falls within the loan guidelines.
Wire Transfer Fee: Sometimes the lender will charge a wire fee for the cost of wiring the funds to the escrow company for closing.
Administration Fee: This fee is often charged in relation to the department that services your loan or prepares your loan for sale to another mortgage company.
Closing Fee: This fee is charged to pay for the preparation of your loan for closing, the preparation of closing documents, and the disbursement of funds.
Flood Certification: Determines whether or not your home lies in a flood plain and if you will be required to obtain flood insurance.
Title Company Charges:
Closing or Escrow Fee: A fee charged by the title company to close your loan.
Document Preparation Fee: Fee charged for the preparation of your documents, usually done by an attorney.
Notary Fees: Fee related to paying a notary to certify that you are who you say you are and that your signature is official.
Attorney Fees: In some states, attorneys facilitate some or all parts of the transaction relating to settlement, title search, escrow, and abstract.
Title Insurance: Insurance policy required on almost every real estate
transaction. Certifies that the title is clear of other liens, judgments, encroachments, or unknown easements and provides for insurance settlement if the certification is not accurate or undisclosed items are discovered after closing that were present at the time of closing.
Endorsements: Fees for items such as the type of property, type of community or type of loan.
Courier: Professional delivery service fee.
Wire Fee: Charged by escrow company for the disbursement of funds to all creditors.
Tax Cert: Certifies how much taxes are due and when.
Government Recording and Transfer Charges:
Recording Fees: Cost of recording your deed at the courthouse.
City/County Tax/ Stamps: Charged in some states- taxes that certain cities and counties charge for the sale or refinance of real estate.
State Tax/ Stamps: Taxes charged in some states for a real estate transaction.
Additional Settlement Charges:
Pest Inspection: Required on almost all FHA transactions and sometimes on other loans.
Items Required by Lender to be Paid in Advance:
Interest: Mortgage interest is paid in arrears. Therefore, your first payment, typically the first of the second month after closing, will pay for the interest from the previous month (in other words, August payment pays for July’s interest). So, this interest charge is to cover the days of interest between closing and the end of the month since you will not have a payment the first month.
Up Front Mortgage Insurance Premium: This is an FHA charge. FHA charges an up-front mortgage insurance premium equal to 1.5 times the loan amount. This fee can be financed into the loan (added to the base loan amount) and does not have to come out of pocket.
VA Funding Fee: VA charges a funding fee based upon the type of service of the Veteran (active duty, reserves, etc) and also the type of transaction (purchase, refinance) and the amount of down payment. Like the FHA funding fee, this fee can be financed.
Hazard Insurance Premium: On a purchase transaction, the lender will require that 12 months homeowner’s insurance premium be paid in advance. This amount can either be paid directly to the insurance agent or can be paid at closing.
Reserves Deposited With Lender:
Hazard Insurance Premium: If you are escrowing for you taxes and insurance, the lender will collect 2-3 months in order to have a reserve account in place so they can pay the bill when it is due.
Mortgage Insurance Premium: On loans that require mortgage insurance, the lender will collect 2-3 months reserves.
School Tax: Some counties collect a separate school tax.
Taxes and Assessment Reserves: Reserves collected by the lender to pay your taxes when due. The amount collected depends on when taxes are due in the county where you live. Can be anywhere from 2-15 months.
Flood Insurance Reserves: Reserves collected for payment of flood insurance. Typically 2-3 months.