A lot of people know that they are supposed to receive a Good Faith Estimate within 3 days of applying for a loan; and that this Good Faith Estimate is supposed to disclose all of the expenses associated with acquiring a home loan. The area that many people can use some assistance with is understanding the many costs and charges that may be on the Good Faith Estimate you receive from your broker or lender. How else can you determine whether or not these charges are acceptable to you but by first understanding each one? How else can you compare the offers between multiple brokers but by comparing the Good Faith Estimates provided by each?

(A key thing to remember when comparing offers is that the 'GFE' is only an estimate. So keep in mind that some lenders and brokers have less 'Good' in their 'Good Faith Estimate' than others...)

These quick explanations will help you understand many of these closing costs, and how you can save on them. Keep in mind that some lenders or brokers add their own custom fees to the good faith estimate.


The fees on a G.F.E. come in these basic categories:

1. Loan fees

2. Fees to be paid in advance

3. Reserves

4. Title charges

5. Government charges

6. Additional charges


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.



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 mortgage rate – same as “buying the rate down”

803 - Appraisal Fee
This is the cost of the independent appraisal. It is usually paid by the borrower/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 (lender)

812 - Wire Transfer Fee
This is the cost of wiring the money, which is usually done by escrow



ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE


901 - Interest for 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



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 prepayment of 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



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. Some states use Attorneys to assist with legal aspects of the loan.

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



The good faith mortgage estimate expenses are in 3 different categories:

1. Fixed Expenses – government charges

2. Slightly Varying Expenses – escrow, notary, pest inspector, appraiser

3. Highly variable – loan fees

The largest 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 sometimes become unpleasant last minute surprises.