Understanding the “Good Faith Estimate” Part 1

Today we will covering Part 1 of a 3 part series to explain the “Good Faith Estimate” (GFE).

Every residential loan requires that the borrower receive a GFE as a part of their disclosures. It is an?estimated summary of the loan charges and reflects all fees and points you pay to the broker (your loan rep),?lender (the issuing bank)?as well as all other charges incurred.

Part 1: Items Payable In Connection With Loan

Loan Origination Fee: This is normally charged by the issuing lender for preparing and securing your loan’s place in their portfolio. Many brokers put their fee here and try to pass it off as charged by the lender. In actuality this is not illegal but I question the ethics. Fees charged by the broker should be listed under?”Mortgage Broker Fee”. However, the “Mortgage Loan Disclosure Statement (MLDS) gives a breakdown of who was paid the origination fee so if you want to double check what was paid to the broker look at the MLDS.

Loan Discount:?This is where anything you pay to “buy down the rate” is listed. On longer term fixed rate loans it makes good sense to buy down the rate.

Appraisal Fee: Almost all residential loans require an appraisal, whether full or drive by. Any appraisal fees are listed here. If you are credited for the fee it will show seperately as a credit within the GFE. Both the charge and the credit are always listed. In most cases an appraisal is paid for by the borrower and at the time of the appraisal. As such, this is marked as “paid outside of closing” and is listed so that it is included in total costs reported by GFE.

Credit Report Fee: This is the actual cost paid by the broker and/or lender for pulling your credit report(s). The report is usually good for 60 days and can be used only by the lender and the broker who pulled it. It is not transferable to another broker by you. However, the broker can use the 1 report to submit to another bank without requiring another credit inquiry. The fee must be actual fee paid. The broker / lender is not allowed to charge more than they paid for this.

Lenders Inspection Fee: If the lender required a physical inspection due to things uncovered by the appraisal. Any fee paid for this would show here.

Mortgage Broker Fee: This is what you pay the broker for doing the research, shopping your loan with the various lenders?and finding the right program. In addition to this fee the broker may also be receiving a rebate from the lender which is listed later in the GFE. Yes, this is a negotiable fee as ultimately all these fees are. There is a wide range of what?varying brokers expect to make but it is dependant on whether your file is clean or not. Files with high credit and good documentation are worthy of very low cost deals. Files with problems require a lot of work by the broker. Understanding your qualifying status prior to the loan will help you negotiate these fees more effectively. If the broker has to handle your messes as the loan is being processed he will charge a higher fee.

Tax Related Service Fee: This is the fee, if listed, is?paid to verify that the property tax payment sent to the assessor was paid to the correct parcel. Most Tax Assessors will state on their bill that they are “Not Responsible If Paid On Wrong Parcel”.

Processing Fee: This fee is paid for the actual processing of the file which includes ordering title, opening escrow, ordering appraisals, reviewing and assembling file for lender, Submitting file for approval, working through any lender conditions, title issues, escrow demands, etc. It is the actual paperwork from the brokers side of the fence.

Underwriting Fee: This is what the lender charges for theor internal review and approval of the file. It is the actual paperwork from the lenders side of the fence.

Wire Transfer Fee: When the loan is funded by the lender it is done via wire.

This describes the items payable in connection with the loan. Any of these fees are negotiable but remember this…knowing what your credit profile is will put you in the best possible position to negotiate.

Part 2 : Title and Recording Fees

Part 3: Lender Required Fees, Reserves, Summary

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