Whether you're purchasing or refinancing, a Good Faith Estimate is a list of all "estimated" fees involved in a mortgage transaction. Pursuant to the Real Estate Settlement Procedures Act (RESPA), a U.S. mortgage lender must present a GFE to a customer within 3 days of submitting a loan application. The estimate is designed to give borrowers the ability to shop and compare the fees of one loan to the fees of another, so that they can make informed decisions based on the cost of the loan. However, obtaining an honest and thorough estimate may be a challenge. Being an informed borrower may save you from unexpected, out of pocket expenses at the closing table and/or a higher loan amount than anticipated. Here's how to read a Good Faith Estimate:
A GFE is sectioned into a range of numbers; 800's, 900's, 1000's, 1100's, 1200's and 1300's. If you're using a GFE to compare lenders, the most significant fees are in the 800's. A few items in this section are charged by third parties such as (but not limited to) appraisal, credit report, inspection, assumption, tax service and flood certification. All of which should be passed on to the borrower without any markup. A lender has complete control over fees such as origination and discount points, Broker fee, processing, underwriting and administrative fees. The origination fee should normally be 1.00% of your loan amount or 2.000% at maximum for lower loan amounts. If this fee is higher, found out why and negotiating may be in your best interest. Items in the 900 and 1000 range are your interest and taxes and mortgage, flood and hazard insurance premiums. These items will vary depending on your closing date and are not negotiable. If you close in the beginning of the month, you will be prepay more interest than if you were to close at the end of the month. These items must be paid upfront or deposited into an Escrow account. The 1100 section is your Title and Escrow charges. Your Escrow fees may be negotiable if you already have a good relationship with an Escrow Officer. If you don't; it never hurts to simply ask. And finally, the 1200 and 1300 section consist of your government fees such as the city and county tax stamps, recording fees and pest inspections.
Ask your Loan Consultant to include a "Refundable Pad" on your GFE; $200 - $300 should suffice. This is a cushion in case any figures are slightly higher than estimated; the additional amount can be taken from the Pad rather than your wallet at the closing table. Any un-used funds from this pad will be refunded to you through Escrow. Also, ask your Loan Consultant to include all known fees in detail rather than in lump sums. This will help to better understand the fees involved in your transaction.
