The
Good Faith Estimate
When you apply for a mortgage, the government requires your
lender to give you a “Good Faith Estimate?(GFE) within
three days of your application. This document sets out all the
costs associated with the mortgage, and most experts recommend
against committing to a loan before seeing it.
A GFE is also helpful because it allows you to compare the
real costs of competing mortgage offers. However, it can be
tricky to understand -- especially if different lenders don’t
list the same costs in the same way, or if the costs are
incomplete or inaccurate. So, it pays to take a close look at
your Good Faith Estimate when it arrives. Here are some of the
things to look out for.
Interest rate and points
A GFE shows your interest rate and any discount points you can
pay at closing. Make sure you understand that paying discount
points will buy you a lower interest rate and lower payments,
but it will take many months before the savings make up for the
fee.
Lender’s fees
The long list includes the appraisal fee, credit report fee,
application fee, mortgage broker’s fee, and interest rate
lock-in fee, if any. Watch for big differences between lenders
-- no fees should vary widely. Also, watch for extra fees
applied only by certain lenders, or missing fees that may not
have been included but are sure to appear later. Ask a lender
about any fee that seems out of line.
Title and transfer charges
The closing or escrow fee, title search and title insurance
fees, and government taxes are pretty much standard. However,
you might get a better rate (called a reissue rate) on the title
insurance if it has been less than five years since the previous
owner took out a policy on the property. And you don’t have to
accept the lender’s title insurance company or attorney; you
may try to find one who offers a lower price. Some states set
the price of title insurance.
Prepaid interest
One item paid in advance is the interest on the loan for the
period before the first payment date. Putting your closing date
close to the end of the month can minimize this charge.
Insurance
A GFE may specify a figure for home or hazard insurance but it
may be less expensive to arrange your own. Also, if you are
being charged for mortgage insurance or flood insurance make
sure you know why.
Fees may rise
It’s important to remember that a GFE is only an estimate. The
figures quoted could rise by 10 percent to 15 percent, or even
more, by closing day. This may happen because a lender has
simply applied the standard rates of the service companies it
deals with, and then had to adjust them later. But some lenders
could also be understating their fees. There are no penalties
for issuing an inaccurate estimate. If your closing costs are
drastically higher than your estimate, talk with your lender. If
the lender can't explain the changes, it might be a good idea
for you to look for another lender.
Fee lock-in
You can protect yourself from nasty surprises by asking your
lender to quote you the exact final costs, or to “lock in?
its fees. Or you can look for one of the “bundled?fee
packages now offered by some lenders -- these might offer a
cheaper overall price.
Truth in Lending Statement
Along with the Good Faith Estimate, a lender will also give you
a Truth in Lending (TIL) disclosure form. This gives you the
Annual Percentage Rate (APR) on your mortgage, which takes into
account discount points, mortgage insurance, and other fees on
top of the basic interest rate.
The Truth in Lending form also lists the total finance fees,
the amount financed, the total amount you’ll pay over the life
of the loan, the total number and amount of your payments, and
when they’re due each month. And it contains other important
details, such as whether the mortgage is assumable if you sell
the home, and whether there is a penalty for prepaying the
mortgage; if the form says you “may?have to pay a penalty,
it means you probably will.
Most important, understand that the figures in the TIL form
can also change. If your interest rate or any of the fees go up
by closing day, so will your APR and the overall cost of your
loan.
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