Mortgage Applicants should understand each fee on a Good Faith Estimate and who will be receiving this fee. Borrowers that understand each fee may be able to save money on their closing costs. Listed below are fees listed on the Good Faith Estimate and their descriptions.The Loan Discount Fee is the amount a borrower pays to have the interest rate on their mortgage lowered. It is usually known as buying down points. For example, a lender may allow a borrower to lower their interest rate 7% to 6.5% if they pay a point which is equal to 1% of the loan amount. This fee should be looked at when comparing loans from different lenders because with one lender you may be paying for a lower rate while another lender may give you the same rate without the loan discount fee.
The Title Insurance fee listed on your GFE is a policy ensuring that there will be clear title to the property and home following the close of the transaction.
Not all lenders list their fees the same. Make sure to compare more then just the origination fees. Often lenders will increase other fees in order to make up for an origination point.
Escrow, title and lender fees are third-party fees. If the mortgage is a purchase money loan, escrow and title will most likely be chosen by the seller. These fees are somewhat negotiable. If the fees for these services seem high, your loan consultant may be able to negotiate a lesser charge
A couple of the items listed in the Estimated Reserves/Prepaid Costs section represent the funds that will be collected to establish your escrow account for your property tax and homeowners insurance. Your first years homeowners insurance premium is also listed as you will typically need to pay for it prior to closing. The line listing prepaid interest will vary depending on what day of the month you close. Interest will need to be collected from the closing date thru the end of the month.
In some states it is customary to use lawyers to handle real estate transactions. The buyer's attorney represents the buyer and the seller's attorney works to protect the seller. The bank also has its closing attorney to look after its interests. The cost of hiring the bank attorney is paid by the loan applicant, and it is listed as Attorney Fees under Title Charges on the Good Faith Estimate.
Loan Origination Fee: This fee is charged by your Mortgage Broker or Loan Officer for preparing your loan application to be submitted to a lender. Preparing your loan application a Broker or Loan Officer must analyze an applicant’s needs, job history, income, credit history, and property information. This information will then be utilized to match borrowers with a Lender and/or loan program.
Appraisal Fee: Most appraisers require this cost to be paid up-front. The fee generally ranges from $300-$600 depending on the value of the property, type of property, etc. This will often be listed on the GFE and the HUD, but will be shown to have already been paid by you. Sometimes, the appraiser will take this payment out of escrow. In addition, some brokers will either refund the cost to you at close of escrow or cover the cost initially and charge you out of escrow.
When looking over the fees on a GFE, Good Faith Estimate, make sure that you compare the total closing costs to each other and not just each line item because each lender charges fees differently from the next lender. The main place that you will want to pay attention to, besides the total fees, is at the escrow account and pre-paid item section. These numbers will be the same no matter what lender you use, however some lenders may not put the escrow account information on the GFE. Look not at the total settlement charges but at the total closing costs minus prepays and escrows to be able to compare apples to apples.
