Good Faith Estimates - Explained

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.