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Morgage Good Faith Estimate Explained
Many people are aware that a Lender or Broker must provide them with a Good Faith Estimate within 3 days of applying for a Morgage; and many people are aware that this 'GFE' is supposed to disclose all of the fees and expenses associated with acquiring a new morgage. The area that even fairly informed people can often use help is understanding each of the many costs, charges and fees that may be on the Good Faith Estimate you receive from your Lender or Broker. Only through understanding these costs and fees can you determine which ones are acceptable to you. Additionally, only through understanding these costs and fees can you fully compare multiple loan offers from competing Lenders or Brokers.
(Before proceeding further it is very important to remember that the Morgage Good Faith Estimate is just that–an estimate. So keep in mind that some lenders and brokers have less 'Good' in their 'Good Faith Estimate' than others.)
The fees on a Morgage GFE come in these general categories:
1. Loan fees
2. Fees to be Paid in Advance
3. Reserves
4. Title Charges
5. Government Charges
6. Additional Charges
LOAN FEES:
801 - Loan Origination Fee
This is charged for originating the loan process.
802 - Loan Discount
Also referred to as Discount Points, this is a charge by the lender for obtaining a morgage rate that would otherwise not be obtainable – sometimes referred to as
“buying the rate down”
803 - Appraisal Fee
Typically paid outside of closing by the buyer/borrower, this is the cost of the appraisal used to determine the value of your property.
804 - Credit Report
This is a small fee that is used to recover the cost of obtaining a credit report
805 - Lender's Inspection Fee
This is the cost for the lender's inspection of the property to make certain it meets their standard for eligible properties.
808 - Morgage Broker Fee
This is a fee charged by a broker for the service they provide the borrower.
809 - Tax Related Service Fee
This is a small lender fee for handling matters related to property taxes
810 - Processing Fee
This is the fee charged for obtaining and packaging your total loan application (completing the application, running credit, collecting income and asset statements, gathering insurance information, and so on
811 - Underwriting Fee
This is the lender fee charged essentially for verifying all of the information in a loan application and determining whether or not it meets the criteria of the loan program for which a borrower is applying
812 - Wire Transfer Fee
This is the fee charged for wiring funds upon the close of escrow
FEES TO BE PAID IN ADVANCE
901 - Interest for days X $ per day
This is the prepayment of interest on your morgage and it occurs so that billing cycles can be standardized with payments due on the 1st of the month (so if your loan closes on the 15th of the month you would 'prepay' up to the end of the month...then your actual payment would be due)
902 - Mortgage Insurance Premium
If your loan has Morgage Insurance then this is the prepaid amount of that Premium (just like interest it is prepaid so that billing cycles can be standardized)
903 - Hazard Insurance Premium
This is the prepayment of hazard insurance on your property (again, it is done so that billing cycles can be standardized)
905 - VA Funding Fee
This is a fee charged by the Veterans Administration upon the funding of your loan if you are using a VA Program
RESERVES
1001 - Hazard Insurance Premiums # months @ $ per month
This is the advance payment of the hazard insurance expenses incurred over the coming months
1002 - Mortgage Ins. Premium Reserves months @ $ per month
This is the advance payment of the morgage insurance expenses incurred over the coming months
1003 - School Tax months @ $ per month
This is the advance payment of the school tax expenses incurred over the coming months
1004 - Taxes and Assessment Reserves months @ $ per month
This is the advance payment of the property taxes you will incur over the coming months
1005 - Flood Insurance Reserves months @ $ per month months
This is the advance payment of the flood insurance expenses that you will incur over the coming months
TITLE CHARGES
1101 - Escrow or Closing Fee
This is the fee for the services performed by the escrow company. The escrow company is to act as a completely neutral party that handles the exchange between the different parties of a real estate transaction (which can include a lender, buyer, seller, notary, agents, and so on
1105 - Document Preparation Fee
This is a fee for preparing and reviewing loan documents and ensuring that they are accurate prior to sending them to the escrow company or to the borrower for signing
1106 - Notary Fees
This is the fee for having the legal documents notarized for recording purposes
1107 - Attorney Fees
This is a fee for any legal charges associated with the transaction and is most common in states wherein attorneys are used to assist with certain legalities involved in lending transactions
1108 - Title Insurance
This is the fee charged for insuring the title of the proeprty. It is used by the lender to protect them in the event a dispute arises over the ownership of the property
1200 GOVERNMENT CHARGES
1201 - Recording Fees
This is the fee for recording legal documents with the appropriate governing body (generally the County)
1202 - City/County Tax/Stamps
Unavoidable government charge
1203 - State Tax/Stamps
Unavoidable government charge
1300 ADDITIONAL CHARGES
1302 - Pest Inspection
This is the fee charged for the pest inspector (Pest Inspectors document the condition of the property for in relation to harmful pests such as termites)
The morgage good faith estimate expenses are in Three categories:
1. Fixed Expenses – government fees
2. Slightly Varying Expenses – notary, escrow, pest inspector, appraisers
3. Highly variable – loan/morgage fees
The greatest expenses are usually in the loan fee section. This is where you need to focus
to try to get a good deal.
Compare the good faith estimates you receive from different brokers/lenders. Keep in mind that these
good faith estimate’s are only estimates. They can change and unfortunately become unpleasant
last minute 'surprises'.
Other Important Morgage Terms
Float -
Allowing the rate and points to vary with changes in market conditions. The borrower may elect to lock the rate and points at any time but must do so a few days before the closing.
Float-Down -
A rate lock, plus an option to reduce the rate if market interest rates decline during the lock period. Also called a cap.
Flood Insurance – A form of hazard insurance required by lenders to cover properties in flood zones.
Floor -
The minimum rate of interest payable on an adjustable-rate mortgage.
Foreclosure (or Repossession) -
Legal process by which the lender forces the sale of a property because the borrower has not met the mortgage terms.
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Morgage Good Faith Estimate Explained - How To Read Morgage GFE Closing Costs
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