How To Understand & Review A Good Faith Estimate [provided by your lender]

understand-a-good-faith-estimate

How to understand a good faith estimate. You’ll get one of these in the mail after being approved for your new mortgage. Don’t throw it away in the trash! Keep it, I’ll explain more below.

As you get closer to signing the final papers for your new property, you might experience a bit of stress and anxiety. It’s perfectly normal to feel this way since it’s a pretty large transaction.

If you spend the time to review the items in your Good Faith Estimate (GFE) and understand what they mean, it will help you relieve a lot of that stress when you actually do the signing. And help make sure you’re not paying too much in fees!

This guide can’t possibly cover every item in a GFE, but it will be a good start for you to understand what you’re looking at.

Below, we’re going to review what these different items mean.

Let’s Begin!

What Do All The Good Faith Estimate Fees Mean? [aka, closing costs]

On your good faith estimate, there will be lots of fees, and I mean lots! You may also see these fees shown or referred to as closing costs. Usually, you’ll be given a copy of your good faith estimate at least a week or two before closing on the deal. You’ll see the finalized one provided by the title company.

There is a long itemized list of different fees and charges to look at. Each with a number by it.

Typically, those item numbers mean the following:

  •  800 Items – Fees related to the actual mortgage loan itself.
  • 900 Items – All of the things you paid in advance.
  • 1000 Items – Any prepaid deposits you make for the loans impound accounts, etc.
  • 1100 Items – All related to the title company.
  • 1200 Items – Government Recording or Transfer Charges.
  • 1300 Items – Anything additional, like your Pest Inspection, etc.

The general rule is to make sure you have a basic understanding of what you should be paying for each one of these fees, ask your broker if you’re not sure of something.

Below is a list of example items that I’ve personally seen when signing closing docs for a refinance or new home purchase. I’ve signed these papers at least 20 different times and the fees all seem to stay the same.

Occasionally you’ll see an error in the fees, I’ve had the most trouble with the ones ending with a *.

Your experience will vary a lot so don’t depend 100% on this for your specific situation.

Some Good Faith Estimate example loan items:

801 Loan Origination Fee* – The price to create the loan.

802 Loan Discount* – To buy the rate down on the loan.

803 Loan Appraisal* – Cost for your home appraisal.

804 Credit Report – Cost to pull your credit.

805 Lender’s Inspection Fees – Cost for the lender to double check the appraisal.

808 Mortgage Broker Fees* – Your mortgage broker’s cut on the deal.

809 Tax Service Fees – More tax-related lender fees.

810 Processing Fee* – The cost of running your loan application, collecting your paperwork, verifying W2’s and paycheck stubs, etc.

811 Underwriting Fee – For approving the loan.

812 Wire Transfer Fee – If you are transferring any funds via Wire
Transfer, the fees for processing the transaction go here.

901 Interest for days X $ per day – Prepaid Interest on your loan amount.

902 Mortgage Insurance Premium – Prepaid money for the Mortgage Insurance, or PMI. For example, a fee will show up here if you put less than a 20% down payment on an FHA Loan.

903 Hazard Insurance – Records the money charged for Hazard Insurance premiums.

905 VA Funding Fee – A funding fee if your loan is part of the VA Program.

1001 Hazard Insurance Premiums – Prepayment of your Hazard Insurance.

1002 Mortgage Insurance Premiums – Premium for starting your PMI payments through an Impound account on your mortgage account.

1003 School Taxes – Prepayment of future school tax payments.

1004 Taxes and Assessment Reserves* – Future payment of Property taxes from your Impound account.

1005 Flood Insurance Reserves – Prepayment of the monthly payment for Flood Insurance. If your new home is in a flood zone, this is most likely going to be required.

1008 Aggregate Accounting Adjustment – A misc. credit to the buyer. Could be used as a credit back for fixing up the property etc.

1100 Closing and Escrow Fees* – Title company fees for helping you close the deal between the seller and buyer.

1105 Doc Prep Fee – For preparing the loan docs, emailing them around, printing the docs, and getting them ready for the title company.

1106 Notary Fee – Fees that go to the person who is your notary when signing the closing documents.

1107 Attorney Fees – If you had a Real Estate Attorney assist you, this cost goes here.

1108 Title Insurance – Cost for getting the title insured, this is a requirement no matter what.

1302 Pest Inspection* – The cost of the pest inspector, every lender requires this.

And there you have it! Fees!

The most common error I see in these signings is that the finance charges are screwed up.

I’m not sure if the mortgage companies think you won’t see it, but watch out for the APR, Points, Kickbacks, Credit Backs, or anything else that looks funny. If the amount you see in the final papers is more than a few hundred dollars off from what your good faith estimate said. You need to have some concerns and address them at the time of signing.

After everything is signed and done, you’ll provide your ID and thumbprint to the notary, and then the deal is done. Funding will begin, and it will be smooth sailing at this point unless the underwriter screws with you. I doubt it though, they normally only do that before you sign.

Final Thoughts

Signing at the title company is a very stressful time, but once the loan is funded a few days later and you get the keys to your new home or rental property, you’re all set!

You’ll look back and say, wow, this is not so bad. The next property will be a breeze.

Cheers!