What is a GFE?
A Good Faith Estimate is an estimate of all of the costs associated with closing a loan. This document should list the points, loan processing fees, inspection fees, title, escrow, recording and other fees the borrower is expected to pay. The Real Estate Settlement Procedures Act requires your lender to give you this estimate within three days of applying for a loan.
The following summarizes many of the costs that will appear on a Good Faith Estimate.
Points are prepaid interest on a mortgage, charged by the lender based on the loan amount. Each point is equal to one percent of the loan amount; for example, two points on a $250,000 mortgage amounts to $5,000. Discount points refer to points paid by the borrower in exchange for a lower interest rate on the loan. Points can also include a loan origination fee, which is usually one point.
A title search is an examination of the public records to insure that the seller is the legal owner of the property and that there are no liens or other claims on the home. Title insurance is insurance that protects lenders and homeowners against loss of their interest in the property in case legal problems arise with the title that the title search did not uncover.
An appraisal is an estimate of the property's value, usually determined after an inspection by a qualified professional appraiser. The value may be based on replacement cost, the sales of comparable properties in the neighborhood, or the property's cash flow. Some lenders may also use automated appraisals that primarily rely upon recent sales data of comparable properties.
The lender may require that you deposit money into an escrow account at closing. Funds in this account are your money, and the lender uses them to make sure that payments on things such as your homeowner's insurance, property taxes and mortgage insurance, if applicable, are made on time. You may be required to fund up to two months of these expenses in your account.
Home loans are usually due on the first of each month. Since loans can close on any day, enough interest must be paid at closing to cover the interest expense up to the next month. For example, if you close on the 27th of April, you will pay three days of prepaid interest.
Processing Fee, Document Preparation, Underwriting Fee, Administration Fee
These fees are another way for lenders to generate income. Generally speaking, document preparation, processing and underwriting are done internally by the lender.
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