Reply
Super Contributor
ShanetheMortgageMan
Posts: 8,253
Registered: ‎09-28-2007

Good Faith Estimates Explained

Receiving a good faith estimate (abbreviated as GFE) is an important step in determining if the loan you are being offered is a good one for your situation. A GFE includes the proposed interest rate, the term of the loan (XXX/YYY is the typical format, where XXX is the months the payment is amortized over and YYY is the months the loan is due in), a line by line description of the anticipated fees being charged on the loan (all together are called settlement costs), the estimated funds to close (or in some situations, such as a refinance, or on some purchase transactions, you could be getting some cash back at closing), and the proposed monthly payment. The GFE is required to be provided to you within 3 days of a complete application being taken or your credit report being run.
 
 
Remember this is a good faith estimate, and while it should be very close to what is expected to be on the final closing statement (called a Final HUD-1 Settlement Statement), some figures can change, including the interest rate if the rate hasn’t been locked in, and various costs from third parties (title, appraisal, escrow, pre-paids/reserves). What should remain the same, unless agreed on by both the originator (broker or lender) and the borrower (you), are the costs in Section 800, “Items Payable in Connection with Loan”, with the exception of the appraisal fee.
Super Contributor
ShanetheMortgageMan
Posts: 8,253
Registered: ‎09-28-2007

Re: Good Faith Estimates Explained

The Section 800 costs are determined by the originator, and since the originator is the one providing the GFE to you, their charges should be consistent from the beginning until the end.

Line 801 is the Origination Fee & Line 802 is the Loan Discount Fee, when both or one or another is being charged it means you are getting a lower interest rate than if you were not being charged an Origination or Loan Discount Fee. This is negotiable, if you want the Origination or Loan Discount Fee to be reduced, you can accept a higher interest rate (in .125% increments). You can ask your loan officer for various GFE’s for each interest rate you so desire. It is not uncommon to ask for a GFE for (example) a 6.000%, 6.125%, and 6.250% interest rate to compare all of the payments and charges. Your loan officer should also give you feedback on which interest rate/costs scenario would be better for your situation.

Line 803 is the Appraisal Fee. This is determined by the appraiser that is being used on your mortgage transaction. The appraisal fee varies depending on the customary fee for the area you are doing the mortgage financing in, the type of appraisal, and the complexity of the appraisal. On average it’ll be about $300, but in some areas it can be $400 on average. An FHA, USDA or VA appraisal, rent survey & operating income statements (for rental properties) add additional costs to the appraisal fee. The reason the appraisal fee in this example is in parenthesis is because the appraisal fee was paid directly to the appraiser outside of closing (POC – paid outside of closing) rather than at the closing of the loan, which is typical for an appraisal fee.

Line 804 is the Credit Report Fee. It’s about 50/50 if you’ll be charged for the credit report fee; it is definitely something that is common though. You should only be charged for the amount the credit report costs, if you see a high credit report fee above the $25-30 range then it’s suggested you ask to see an invoice for the credit report fee to make sure you aren’t being charged more than the actual charge to the originator.

Line 805 is used when the lender needs to inspect the home for one reason or another – for example if there is a question on occupancy of the home, if the property is somewhat commercial in nature so the lender wants to determine if it still has a residential feel, etc. Common amount for a Lender Inspection Fee is around $150, but it’s not a very common fee.

Line 808 is a fee that is being charged when you use a Mortgage Broker. Not all mortgage brokers charge a fee on line 808, and more often than not there isn’t one. If one is being charged, it serves the same purpose as Line 801, so it is negotiable just like an Origination Fee is.

Line 809 is a Tax Service Fee, which is charged by the lender to handle the property tax information on a home. This may cover the costs of establishing and maintaining an escrow account as well as making sure that property taxes are being paid on time.

Line 810 is a Processing Fee. This is charged for the processing of the loan. It is most commonly charged on brokered mortgage transactions but lenders may charge a processing fee as well. Average for a processing fee is $300 up to $600, and can sometimes be negotiable.

Line 811 is an Underwriting Fee. This is charged by the lender to cover their underwriting costs. Can be anywhere from $400 up to $1,000, and is usually not negotiable. Sometimes instead of charging an underwriting fee, lenders will charge an Admin fee, or a combination of Underwriting/Doc Prep/Funding fees, that when all totaled up will be in the $400 to $1,000 range. For this fee a majority of lenders will be in the $400-750 range though.

Line 812 is the Wire Transfer Fee. Wiring funds from the lender to the title/escrow/attorney company costs money and this is the lender’s way of recouping their costs for that.

Line 813 is the Flood Certificate Fee. On every loan a flood certificate is obtained to determine if the property is in a flood zone or not, charging for this service is the lenders way of recouping their costs for obtaining the flood certificate.
Super Contributor
ShanetheMortgageMan
Posts: 8,253
Registered: ‎09-28-2007

Re: Good Faith Estimates Explained

Section 1100 are the costs that are charged by the title/escrow/attorney company (as a general term, “closing company” or “closing agent” is used). These fees are estimated by the originator, and in some cases can be very precise. Ask your originator if they are estimating these fees or if they already have contacted a closing agent to obtain the costs laid out in this section.

Line 1101 is the Closing/Escrow Fee. This is the closing agent’s fee for doing their part in the mortgage transaction. The amount of this fee varies around the U.S., and even from closing company to closing company within the same geographic area in the U.S. On purchase transactions it’s usually a bit more than on refinance transactions. The closing company can be pre-selected by the mortgage company, by the seller (on a purchase), or you might be able to choose the one that is used on your mortgage transaction.

Line 1105 is the Doc Prep Fee. This is the fee that the closing company charges to prepare the loan documents for your signing. After the docs are prepared by the lender and sent to the closing company, the closing company prepares some of their documents such as the Final HUD-1, and in some cases the Grant Deed and other documents. This fee could also be for receiving docs via email and printing them out.

Line 1106 is the Notary Fee. Some closing agents charge a separate fee for the notarization of documents and some include the notary fee within the closing/escrow fee. If you are signing away from the closing agent’s office, a mobile notary fee is often charged in the amount of $100-150.

Line 1107 is the Attorney’s Fee. If you are in an Attorney State (New York, Georgia to name a couple), instead of a Closing/Escrow Fee you will be charged an Attorney Fee. It serves the same purpose. Another situation where someone would be charged an Attorney’s Fee is if there is some paperwork reviews required, or certain legal documents have to be prepared by an attorney, then an Attorney Fee could also be charged (regardless of which state you are doing the mortgage transaction in).

Line 1108 is the Title Insurance Premium. This is the premium for the title insurance which the lender requires to be obtained on a mortgage transaction. Title insurance protects whoever the insured is against defects in title to the property. There are two forms of this, the Lender’s Coverage, which is based on the loan amount and good for the life of the mortgage (so it’s terminated when the mortgage is paid off) and then also the Owner’s Coverage which is based on the purchase price which lasts even after the mortgage is paid off and even after the property is sold (so it’s forever). Lender’s coverage is always required on a mortgage transaction, while Owner’s Coverage is optional. Some examples of the protection that title insurance affords the insured are fraud, unrecorded easements (where someone has a right to enter your property), invalid deeds, and claims for unpaid inheritance/gift taxes from a previous owner.

Other title costs, which don’t always have a specific “line number” associated with them, are Endorsements, Courier/FedEx, and Wire Fee’s. Endorsements are used to change the coverage of the title insurance policy. An ALTA title policy provides adequate coverage for a majority of the “simple” real property transactions. If the transfer of title is not “simple”, the policy coverage needs to be added by endorsement to tailor coverage to meet the needs of the insured. The two most common title endorsements are ALTA 8.1 & ALTA 9, and often you are not charged for those endorsements. If additional endorsements are needed, such as if you are getting an ARM mortgage, financing a condominium or PUD, or doing a construction loan, then you are charged for those specific ones (usually around $25 to $125 per endorsement). Courier/FedEx fees are pretty self-explanatory, they are for any overnighting that needs to be done by the closing company (such as overnighting docs back to the lender) or if a deed/mortgage needs to be run down to the recording office for recording then a courier is used. Wire Fee’s are usually charged on a refinance transaction as the closing company needs to wire the amount of money to the mortgage company which is getting paid off.

Closing company costs can vary from area to area as well, so there are some fees that are charged which have not been mentioned – such as an Illinois State Policy Fee ($3.00) and other state specific fees. You are always more than welcome to ask what purpose a fee has.
Super Contributor
ShanetheMortgageMan
Posts: 8,253
Registered: ‎09-28-2007

Re: Good Faith Estimates Explained

Section 1200 is for fees charged by the government (state, county or city). These will vary depending on what state/county/city you are doing the mortgage transaction in and are set by the government. The costs of these are not negotiable, however if you are doing a purchase transaction you might be able to get the seller to cover some/most/all of them.

Line 1201 is the Recording Fee to record the Mortgage & Deed. This cost is determined by how many pages need to be recorded. Usually the first one or two pages have a flat fee, say $20, and then every page after that has a per page fee of $1 to $5. On the GFE this is usually estimated, but as soon as the docs are delivered to the closing agent it is revised to the exact figure. A resourceful originator will contact a local closing company to determine the reasonably accurate estimate on the recording fees.

Line 1202 is the City/County Transfer Tax or Tax Stamps. Some cities or counties charge fees for doing a mortgage transaction, or purchasing/selling real estate. This funds local government programs, schools, etc. Some base is on the mortgage amount being obtained and some base it on the transfer sales price of the property. Your originator should be doing research on if you will be charged city/county transfer tax/tax stamps on your mortgage transaction, and should be listed on the GFE.

Line 1203 is the same thing as line 1202 but on the State level. Some states, such as FL, GA & NY to name a few, charge fees on mortgage transactions or purchasing/selling real estate. Some base is on the mortgage amount being obtained and some base it on the transfer sales price of the property, and sometimes there is a tax on both (such as FL & NY).

Section 1300 is for miscellaneous fees that can’t be fit into the other sections (800, 1100 or 1200) because there are not enough line items to squeeze them in on. Such items could be a pest inspection fee, a survey, a breakdown of the mortgage payoff, or pretty much anything.

Below section 1300 is the total for your Closing Costs.
Super Contributor
ShanetheMortgageMan
Posts: 8,253
Registered: ‎09-28-2007

Re: Good Faith Estimates Explained

Section 900 is for items that the lender requires you to pay in advance.

Line 901 is Pre-Paid Interest. On mortgages, interest is paid in arrears. Meaning a mortgage payment due on July 1st will pay for principal due for July, but for interest that accrued on the mortgage balance being borrowed in the month of June. So let’s take an example where you are closing on your mortgage transaction on May 20th. Your mortgage lender would not make your 1st payment due on June 1st because there just isn’t enough time to set it up with their servicing department (usually needs about 20 days for that to be set up). The first payment would be due on July 1st. So since interest is paid in arrears, and July 1st payment pays for the interest that accrued in the month of June, and you are not making a June 1st payment which would’ve paid for the interest that accrued in the month of May, you prepay May’s interest on the closing of the loan. So a closing on May 20th would have 12 days of prepaid interest charged at closing (5/20 through 5/31).

If you close within the first 10 days of the month there are some lenders which will give you the option of having your first mortgage payment due the 1st of the immediate month following the closing – this is done by “funding into the month” where instead of being charged pre-paid interest at closing you would receive an interest credit. So using an example of closing on May 5th, and let’s say you chose to have your 1st payment due on June 1st (which pays for May’s interest), you would have a full normal payment due on June 1st, but at closing you would receive an interest credit from the lender for 5 days (5/1 to 5/5). On the GFE this would be represented by a negative amount of days of interest on line 901.

Line 902 is any Mortgage Insurance Premium (MIP) that is paid upfront. This is most common on FHA loans however some conventional loan mortgage insurance plans might also give you the option to pay MIP instead of it on a monthly basis. On FHA loans the mortgage insurance premium is 1.5% of the amount being financed, on conventional loans which have the option to pay upfront mortgage insurance it will be determined by the characteristics of your loan (credit score, mortgage type, mortgage term, occupancy, loan-to-value to name a few). On FHA loans the MIP can be financed into the loan amount (base loan amount + extra loan amount to cover the MIP), but on conventional loans it is a cost that must be paid for (if a purchase) or paid for/financed into the loan amount (on a refinance if there is enough room to increase the base loan amount to cover it). On USDA Guaranteed Rural Development loans, this is where the 2% guarantee fee would be listed as well. On USDA GRD loans the 2% guarantee fee can be rolled into the loan (base loan amount + extra loan amount to cover the 2% guarantee fee).

Line 903 is the Hazard Insurance (homeowners insurance) Premium. Homeowners insurance is required when you have a mortgage against your home. There are basically three parts of homeowners insurance – dwelling coverage (to rebuild your home in case of a disaster), personal coverage (to protect your belongings, house gets robbed, etc.), and liability coverage (someone trips on a garden hose in your yard, etc.). Lenders only require you have sufficient dwelling coverage, the other two forms of coverage are optional but I do recommend you get them. On purchase transactions the premium for this insurance needs to be paid up for a full year, which is typically how insurance companies bill homeowners insurance anyway. You can pay this through the closing on the mortgage or to the insurance company directly “outside of closing”, which it would then be marked with a “POC” (like the appraisal fee on line 801). On refinance transactions, unless the premium falls within the first two months after closing, you can just pay it as normally scheduled. On a refinance transaction, if the premium has to be paid within the first two months after closing, and you are “escrowing” (described in section 1000) then lenders often require you pay the insurance premium at closing.

Line 905 is the VA Funding Fee. This is similar to line 902, Upfront Mortgage Insurance, where it can be financed into the loan amount (base loan amount + extra loan amount to cover VA Funding Fee). The VA Funding Fee amount is determined by the Veteran’s status, the transaction type (refinance, cash out refinance, or purchase) and how much in remaining VA benefit entitlement they have remaining.

Section 1000 is for Escrow Reserves Deposited with the Lender in the situation where you are establishing an escrow account to pay property taxes/homeowners insurance from.

Line 1001 is for the Hazard Insurance Reserves. This is determined by when your homeowners insurance premium is next due. On a purchase transaction it is most common for there to be 4 months of reserves collected for at closing. The reason being is that the lender is often 2 months shy of a full amount to pay the homeowners insurance premium the following year, plus in addition to however many months the lender would be short by, it is legally allowable for the lender to collect an additional two months as a “cushion”. For example you are closing on the purchase on May 20th, which is when the homeowners insurance goes into effect. On 5/20/09 is when the next homeowners insurance premium is due. Your first payment is not due until July 1st. You would be making July, Aug, Sept, Oct, Nov, Dec, Jan, Feb, Mar, and April’s mortgage payment (10 months) before the lender would send out the money to pay the insurance premium due on 5/20/09. The reason they don’t assume you’d have made May’s payment, and would then need 1 less month of reserves, is because often you can make your payment up until the 15th of the month without incurring a late fee, and that would be too late for the lender to pay out the insurance company the premium and have it received on time – the lender isn’t interested in cutting it that close. Thus the 2 months of reserves + 2 month cushion = 4 months. On a refinance transaction the hazard insurance reserves are calculated by the 2 month cushion + however many months they lender would be short by when it comes to paying the upcoming homeowners insurance premium.

Line 1004 is similar to line 1001 except for it’s the Property Tax Reserves. This is determined by when your property taxes are due, and how much is due on each due date. Most states/counties have their property taxes due twice a year in equal amounts (6 months each), however there are areas of our country where they are collected for 4 times a year in equal amounts, once a year in one lump amount, and even twice a year in unequal amounts. Your mortgage originator should do their due diligence and find out when property taxes will be due for the property you are financing. Line 1003 is grouped in the same category, as there are some areas in the country where there are school taxes/county taxes/municipal taxes, etc. If you are ever interested in finding out ahead of time, you can call up the taxing authority for your county and they can explain when taxes are due, how they are calculated, and any exemptions one can qualify for (such as homeowners exemption, disability exemption and senior citizen exemption, which availability may vary depending on location).

An escrow reserve is not required to be established on all loan programs. If you are doing a conventional loan program and your loan-to-value (LTV) is 80% or below (90% or below in California) you have the option not to establish an escrow account. Keep in mind you are solely responsible for paying your homeowners insurance and property taxes in that situation. If the lender determines you have not paid those items on time they can force you to establish an escrow account and/or force you to use their own homeowners insurance company (called force placed insurance). On FHA loans, VA loans, and USDA RD loans you are required to have an escrow account. Sub-prime programs, which are a type of conventional loan program, often give you the choice to set up an escrow account or not regardless of what the LTV is.

Line 1005 is if Flood Insurance is required and is paid separately from your normal homeowners insurance. Often the flood insurance premium is included in the homeowner’s insurance premium amount; you should speak to your insurance agent to determine how that would be set up if flood insurance is required.

Below section 1000 is the total for the Pre-paid items/Reserves, as well as a total of for the Settlement Costs.
Super Contributor
ShanetheMortgageMan
Posts: 8,253
Registered: ‎09-28-2007

Re: Good Faith Estimates Explained

In the lower left corner is the breakdown of the Total Estimated Funds Needed to Close. It’ll include the purchase price (purchase)/payoff (refinance), the new loan amount, estimated closing costs, estimated prepaid items/reserves, any settlement costs being paid for by the seller (or another party, such as the real estate agent, mortgage broker or mortgage lender), and any cash deposit you’ve put down (in the case of a purchase transaction), new 2nd mortgage (subordinate financing), new 2nd mortgage closing costs, and at the very bottom of that section will be the estimated amount of funds you will need to bring in to close on the transaction or in some situations (such as a refinance) will be the estimated amount of cash back to you at closing.

In the lower right corner is the breakdown of your Total Estimated Monthly Payment. It’ll include the principal & interest (P&I) payment on the 1st mortgage, P&I payment on any other mortgage on the property (other financing), hazard/homeowners insurance, property taxes, mortgage insurance, and homeowners association fees. Even if you choose not to establish an escrow account to pay your property taxes/homeowners insurance from, and even though you never pay your homeowners association fees with the mortgage payment, they will still be listed just for reference.

Even though a lot was covered in the above information, there are still transaction specific questions that you might have pertaining to charges seen on a GFE. Feel free to create your own thread (or find another thread which contains a similar question) to ask follow up questions.

You are always welcomed to post a GFE you have received in a new thread and ask the participating mortgage mortgage professionals here to comment on if it’s a good offer for your situation or not. When posting a GFE, in addition to the actual GFE itself (you do not need to post a picture of it unless you are able to, you can just copy & paste line items into a new thread), please provide any helpful information which would help others determine if it’s a good match to your situation. That “helpful information” could include, but is not limited to, the type of mortgage (30-year fixed, 5-year ARM, VA, FHA, etc.), your credit scores and what is on credit, your income & your monthly payments (to determine your debt to income ratio), and any reserves/assets (savings/checking, 401k, IRA, stocks, bonds, CD’s, mutual funds, etc.) which can be used as a compensating factor for areas within your “borrowing profile” which are lacking (such as a high debt ratio could be offset by having a lot of reserves).
Member
elronte
Posts: 8
Registered: ‎05-14-2007
0

Re: Good Faith Estimates Explained

Excellent post Shanethemortgageman.  This is just what I needed.  One quick question, is it possible to attain a GFE without having your credit score pulled by the lender and I provided it to them?
 
TU: 658
EX: 664
EQ: 672
Super Contributor
DallasLoanGuy
Posts: 6,239
Registered: ‎07-03-2007
0

Re: Good Faith Estimates Explained



elronte wrote:
Excellent post Shanethemortgageman.  This is just what I needed.  One quick question, is it possible to attain a GFE without having your credit score pulled by the lender and I provided it to them?
 
TU: 658
EX: 664
EQ: 672


yes....



* While I try to visit the forum often, please feel free to contact me directly with a link to your post if I fail to answer a follow up question.

* Lending across the entire 'Great State of Texas' since 2004
Moderator Emeritus
masdeocho
Posts: 2,050
Registered: ‎04-17-2007
0

Re: Good Faith Estimates Explained

Shane, thanks so much for this.  I'm going to lock the thread so that if anyone has specific questions, they can start a new thread.
-----------------
Bartender, bring another round of FICOtinis please!

9.4.2011: TU 805. EQ 815.

myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.

>> About myFICO
FICO Score - The Score that matters
Click to Verify - This site chose VeriSign SSL for secure e-commerce and confidential communications.
Fair Isaac Corporation is a BBB Accredited Financial Service in San Rafael, CA
FOLLOW US Social Media Facebook Twitter Pinterest Google+
}