fff University: The Good Faith Estimate
Yesterday, we discussed a few new rule changes that effect Good Faith Estimates (GFE). I then realized, we haven’t discussed GFE’s on fff before. Until now…
So what is a Good Faith Estimate?
In short, a GFE is a list of fees due at the time of closing on a real estate loan. The GFE includes the types of fees and the estimated cost of each fee. These fees comprise your ‘closing costs’ and typically range between 3%-5% of the sale price.. The Federal Real Estate Settlement Procedures Act requires your lender to provide you with this estimate within three days of applying for a loan (it simply has to be mailed by day 3).
What fees should we expect to find on the Good Faith Estimate?
There are two types of fees you will find on your GFE. The first type concerns ‘Origination’. These fees are tied to the cost of producing your loan – assessing your ability to borrow and the banks ability to end to you. They include things such as: discount, property appraisal, credit report, lender inspection, mortgage insurance application, mortgage broker fee, application, rate lock, processing, underwriting, and wire transfer.
The second type of fees are relating to ‘closing’ your loan. In other words, they are related to the new ownership. Some examples: title search, title examination, document prep, notary, attorney, title insurance, recording the property, city/county taxes, transfer taxes, survey, pest inspection, condo application, and any prepaid requirements (interest & taxes).
Please note that some of these fees are controlled by the lender and others are not. The fees are are not lender-controlled are set by third party resources. For example, the lender does not conduct property appraisals. They contract with a real estate appraiser. The appraiser sets his fee and it is passed through the lender to the borrower. A savy consumer would ask to see the appraiser’s invoice from the lender. The reason being, some lenders will inflate the cost before passing it to you, the borrower.
In the sake of frugality, pay special attention to negotiable services such as settlement fees, closing fees, appraisal fees, title search fees, title examination fees, document preparation fees, notary fees, and homeowners insurance. You *can* shop around for these services. The lender only makes these decisions by default. You can request other service providers. For more information about saving money on closing costs, visit our previous post.
What is the latest news on GFE’s?
Prior to 2010, the banks have rested heavily upon the fact that the GFE is merely an estimate. Often times, the quoted fees would vary significantly prior to closing (in the lender’s favor, of course). As expected, borrowers wouldn’t know this until they show up for closing. At that point, the lenders knew it was too late to call the whole thing off on account of a few hundred dollars. But now. thanks to new rules placed upon lenders, there is increased accountability. Lenders are limited in their ability to change estimated fees.
How do GFE’s effect your home loan shopping process?
In the end, a savy shopper would follow the basic rules of consumerism. Shop around. Get at least 3 prices. Be skeptical. Ask lots of questions.