Good Faith Estimates are the summary of the estimated overall costs when you want to undergo a mortgage transaction. Good Faith Estimates are based from the RESPA or Real Estate Settlement Procedures Act wherein the lender must give the customer (the person applying for the loan) the GFE at least within three days upon the submission of the loan application forms. GFE’s are designed to give the borrower an opportunity to look around and canvass for the best rates for his loan. If you want to be an informed borrower then you must know how to read and interpret the Good Faith Estimates that you will be receiving when looking out for good mortgage loan deals.
- Knowing the range of numbers. Typically in GFE’s, there is a range of numbers involved – 800’s, 900’s, 1000, 1100, 1200 and 1300’s wherein the most relevant fees for you are in the 800’s range. This section would typically include items such as credit reports, assumption, tax services and inspection services and the like. Sometimes, floor certification is also covered in this section. The more transparent the report is, the better, since all of the costs should be visible to the borrower with no mark up fee of any kind. Other fees wherein the lender can be in 100% control of are the broker fees, discounts, processing and other administrative fees.
- Knowing how much the originating fee should be. You should know that originating fees should be in the range of around 1% of the amount you are targeting to loan with a rare maximum of 2%. The lower rate would normally apply to loans of smaller value. If you notice that the lender is charging you an unusually high originating fee then it would be best to ask why there is a premium and what it entails.
- Understanding the 1100 section. This section will detail the charges relating to your title and Escrow. If in case you have an excellent working relationship with your Escrow officer then your Escrow fee can be waived or a big discount can be applied. Sometimes all you need to do is to ask. If they say no, at least you tried. If they say yes then considerable savings will be given to you. That is why it wouldn’t hurt to be nice to most people. The next section, the 1200 and 1300 areas would detail the fees relating to the government or other local government fees such as tax stamps and pest inspections.
- Having a “Refundable Pad.” Usually, a refundable pad of around $300 can be provided. This means that there is a buffer in case the charges exceed what is written in the GFE and the $300 buffer would cover for this cost. This would be very convenient for you and sort of ensures you that the cost will not balloon when you go with a particular lender.
Some more ways of knowing and understanding your GFE is by asking your loan officer to include full details of the fees, especially those that seem rather large. Usually these fees can be further broken down and this would give you greater visibility of your GFE.