Lenders are required by truth in lending laws to supply mortgage applicants with a “Good Faith Estimate” (GFE) of the fees involved with closing on the mortgage, within 3 days of the application.
This Good Faith Estimate lists all of the fees that will be charged to the borrower when the home loan closes.
The problem with these estimates is that each bank uses their own form, so it may be difficult to compare the fees.
This makes it difficult to know what you are paying for.
The most crucial section of the Good Faith Estimate is the Total Estimated Funds Required section. In this statement, you can see the fees you will have to cover when you close.
A major cost listed here is the loan origination fee. Some very aggressive lenders may charge a fixed fee, but most charge a percentage of the mortgage, between .5% and 2 %. Because of this, this can be a large number, so it is definitely worth checking for correctness.
The lender will list an appraisal fee on the estimate, and this is a legitimate fee since they have to know the value of the property. To make sure it is in line, you can check the fee with other appraisal agencies. The three day review period allows you the time to perform this review.
The borrower should review the processing fee. This fee is for the work the bank puts into the loan to get and go over the information. You may see these costs listed individually, as administration, courier, etc. Often, lenders are able to negotiate these costs.
The next item to understand is the underwriting fee. The bank will charge for the compilation and review of documents related to the approval of the loan, and this is called the underwriting fee. This is information critical to the decision about whether the loan will be approved.
Attorney and title fees are another item that the borrower should review. You can pick your own closing lawyer to have control over this cost.
If there are mortgage broker commissions involved, the buyer sometimes has to pay them. However, many times the bank is the one to pay these fees. There may be a possibility that you can bring this rate down.
Next, review the fees related to the home itself. The seller may have paid homeowner’s insurance and taxes in advance and will get a credit on the closing statement for the period covered after the closing date.
Watch out for charges that are bundled. You can ask for an itemized list of those items. The total of the fees listed on the GFE should be fairly accurate. If you are able to get any changes, make sure you get another copy of the closing cost statement for review before the closing.
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