“How to Read a Good Faith Estimate”

Upon completing a mortgage application, you should always be presented with a Good Faith Estimate (GFE). This form is designed to give you an accurate look at the settlement charges you will incur when closing on a new mortgage loan. Below, you will find a discussion of the three main sections of this form:

Lender Fees and Points

In the topmost section of the quote, you will find the charges that are specific to your lender. It is in this section that you will see how much you are paying in origination points, processing fees, and all other various lender fees. Generally, when comparing lenders offering the same rates and terms, the one offering the lowest fees in this section is the most affordable.

Taxes and Insurance

In the section below the lender fees, you will find the fees that are specific to real estate taxes and insurance. There should also be an estimate for prepaid interest in this area of the quote. No matter whom you close your loan with, these fees should be the same; therefore, one good way to evaluate the honesty of your lender is to see how liberal or conservative they are on their initial quote in this area. Some lenders will undercut their estimates in this section in order to make their closing costs look cheaper than their competitors.

Title Insurance and Miscellaneous Fees

Near the bottom of the quote, you will find estimates for title insurance, deed recording, document preparation, transfer tax and other state and local taxes. Most of these fees are fixed costs, but you do have the right to choose a title company that gives you the best rates in this area.

On this formal quote, you will also find in black and white a total of settlement charges, your interest rate, term, type of rate, i.e. fixed or adjustable, and total monthly payment. You should note, though, that this form is only an “estimate” of what your closing costs will be. It is likely that it will change in some ways before closing based on when you close and how much your final loan amount turns out to be. It is our hope that this discussion has given you some useful information on reading good faith estimates; however, if you have any questions about what you’ve read here, or would like to get more information about any mortgage topic, feel free to call us toll free at 1-888-383-5363 or simply fill out the question box below. We will be glad to help you in any way we can. There is never any obligation, and there are no fees associated with simply answering your questions.