A Good Faith Estimate (GFE) is something that you are to receive within 3 days of a mortgage application. These are standard forms, so they are intended to be used to compare different offers (or quotes) from different lenders or brokers.
The GFE lists an estimate of what the total costs will be to get your mortgage. It is a long list, and the charges can be confusing.
The key thing to remember is that it is only an estimate. Your final costs may be different – sometimes very different.
These quick explanations will help you understand many of these costs, and how you can save on them. Keep in mind that some lenders or brokers add their own custom fees to the GFE.
The fees come in these basic categories:
Loan fees
Fees to be paid in advance
Reserves
Title charges
Government charges
Additional charges
The following is a list of the typical charges, with advice on how to lower this if you can. Each charge starts with a number – the same number is the number of the charge on your GFE. This makes it easier to find the charges you are looking for on your GFE.
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 interest rate – 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 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 times 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
Others charges
These can be additional charges that change within different loan sources
Pay particular attention to these charges, but they can also be listed in other sections
Saving on your expenses
The expenses are in three different categories:
Fixed – government charges
Slightly variable but small – escrow, notary, pest inspector, appraiser
Highly variable – loan fees
The biggest expenses are usually in the loan fee section. This is where you need to focus to try to get a good deal.
Compare the GFE’s you receive from different lenders. Keep in mind that these GFE’s are only estimates. They can change, and sometimes become unpleasant last minute surprises.
For more information visit www.archerpacific.com
Loan Library
The author is the owner of Archer Pacific, a mortgage company. The firm's website, http://www.archerpacific.com, has extensive resources and tips on many mortgage topics.
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