Friday, December 8, 2006 - Article by: Lender411 Member
A good faith estimate is a document that estimates the total costs to get a loan when you are buying or refinancing a home. The good faith estimate details costs you will incur on all loan-related fees such as title insurance, appraisal, and lender fees.
To help you better understand your good faith estimate, HUD (Department of Housing and Urban Development) has standardized all items with codes. The fees listed on a GFE are estimates -- the actual charges may be more or less. Your transaction may not involve a fee for every item listed.
All lenders and brokers are required to provide you with a Good Faith Estimate detailing the services you may be required to get and pay for in connection with your loan. I have included the standard line item numbers used on the Good Faith Estimate form.
Below is a list of common closing costs that could be included on your good faith estimate. Please remember that although we are committed to being as accurate as possible, this is just an estimate. If our in-house fees must change we will make every attempt to discuss these with you in advance. We are not responsible for additional fees that are unknown at this time, especially from third parties, that may become necessary before you close.
CHARGES FROM THE LENDER
Loan Origination Fee
This fee is charged by brokers and lenders for their professional services in securing your financing.
Loan Discount Points
Often referred to as "points", this is a one-time charge from the lender that you pay to buy down the interest rate on your loan. Generally, the higher the charge, the lower the interest rate, and vice versa. Each point equals 1% of the loan amount. Discount points may be required on the loan you choose like some investor loans and 100% financing.
This fee covers the cost of reviewing your loan application. Underwriting is the name of the analysis a lender performs to determine if they are willing to lend you money and under what conditions.
This is a fee charged to cover some of the in-house expenses related to our professional staff and operation.
Any fee paid by a potential borrower to a potential lender for the lender's promise to loan money at a specified date in the future. The lender may or may not expect to fund the commitment.
A processing fee is charged to cover the cost of processing the loan with our professional team of customer service friendly staffers.
The charge for the costs of sending documents to various parties using couriers or express mail services. These costs are generally based on actual usage and will generally be higher when the process is rushed, but some lenders may use a fixed charge.
Wire Transfer Fee
When your loan funds, it is a common practice for a lender to wire the funds to the settlement provider (escrow holder, title company, or attorney). This is a fast and efficient way to transfer funds in a transaction where time is crucial. The receiving account charges a nominal fee for the wire transfer.
Document Preparation Fee
This charge covers the cost of drafting the loan documents.
Addition Settlement Charges
Fees not covered by one of the other HUD numbers can be included as a 1300 series
CHARGES FROM THIRD PARTIES
The appraisal fee covers the cost of a professional appraiser evaluating your home to estimate its fair market value. The appraisal is used to calculate the loan amount as a percent of the property value. This loan-to-value (LTV) ratio is one of the factors that dictates whether a lender is willing to approve the mortgage application and whether additional fees may be required (e.g., mortgage insurance). The cost of the appraisal will depend on the location of your property (rural vs. urban), the complexity of the appraisal and the going rates for appraisers in that area.
This fee covers the cost of a credit report that will be used by the lender to review your credit history and help determine whether to approve your application. That payment usually goes to the credit service agency. Because lenders require an independent credit report, we cannot reuse any prior credit reports you may have. One report is required per borrower, unless the borrowers are married to each other in which case a combined report can be used.
Tax Service Fee
The lender needs to know that the property taxes are being paid in full and on time because a tax lien would take priority over their lien as a lender. This one-time fee covers the cost of a tax service agency hired to monitor your account. If your taxes are impounded, the agency provides the lender with your tax bills so that the lender can pay your taxes on time. If you pay the taxes yourself, the agency monitors the tax rolls for the life of the loan, and informs the lender if they ever become delinquent so that they can take action to protect their lien position.
Lenders want to ensure your property (their collateral) is well protected from likely hazards. In addition to requiring hazard insurance to cover events like a fire, they want to know if floods are a concern in your area. This fee covers the cost of a report to determine if the property is in a flood- risk area. The Federal Emergency Management Agency (FEMA) designates flood zones to indicate that certain areas have a high risk of flood damage. If your home is located in one of these flood zones, you will be required to secure flood insurance. Most homeowner's policies do not cover flood damage, so a separate policy will be required.
1301-1312 Additional Settlement Charges
Fees not covered by one of the other HUD numbers can be included as a 1300 series
CHARGES FROM THE TITLE/ESCROW COMPANY
Settlement or Closing Fee
This fee pays for the services of the escrow or settlement agent that handles all the financial transfers and payments associated with the transaction.
Title Examination Fee
This fee pays for a search of all liens secured against your property to ensure that your claim to the property is unencumbered.
This fee covers the cost of hiring a licensed notary public to certify that the individuals signing documents are who they claim.
In some states an attorney performs the functions of an escrow agent, in which case this fee is in place of the Settlement or Closing Fee described above. This fee could vary widely by area of the country and by the individual attorney you select. Please consult with your local real estate agent to understand if an attorney is customary and to get an estimate of the associated fees.
Title Insurance: Lender's Coverage
Title insurance insures against the possibility that there is an unknown lien on your property and ensures your undisputed ownership. The title company will check that no other entity has a lien, unpaid claim or other restriction on your ownership of the property and protects the lender in case a lien does exist that the search did not uncover.
Title Insurance: Owner's Coverage
Owner's coverage also guarantees that your home has no other liens. The difference is that it protects the owner and insures you for the entire value of the property (not just the loan amount). The premiums depend on the property value. The owner's policy is not necessary in a refinance situation as that policy remains in full force and effect for as long as the owner owns the property.
This fee covers the cost of balancing the account, insuring all appropriate parties are paid at the closing of escrow, disbursing funds via wire or check and processing payoffs.
The reconveyance fee covers the cost of removing your current lender's lien from your property title and it only applies when you refinance. This fee is paid to county recorder to record the mortgage or deed of trust and the reconveyance or release, which makes the transaction a matter of public record.
This fee is similar to the courier fee charged by the lender, but covers the title company's or attorney's costs.
CHARGES FROM THE GOVERNMENT
Once your transaction closes, your mortgage or deed of trust is recorded at the county recorder's office to make your transaction a matter of public record. The recording fee varies by the county being paid.
State Mortgage Tax
This is a tax charged by some states as an additional means of collecting tax revenue and ranges from 3/4% to 1-3/4% depending on the jurisdiction. The current states charging a mortgage tax include Alabama, Florida, Georgia, Hawaii, Kansas, Maryland, Minnesota, New York, Oklahoma, Tennessee and Virginia.
This fee covers the cost of searching the Registry of Deeds to determine if there are any other liens on your property. Often this fee is included in the title insurance fees. The fee varies widely, but is usually a few hundred dollars.
Home Equity Description
Recordation Service Fee
This fee covers the cost of processing the deed recordation. The service includes the assurance that the lien is recorded, all borrowers are vested and/or have the right to permit a lien to be recorded against the property and associated courier services.
PRE-PAID ITEMS REQUIRED BY THE LENDER
Lenders require that you pay the interest due on the new loan from the date of funding to the time of the first monthly payment (usually the first day of the next month). The interest due is calculated using the loan's interest rate and the appropriate number of days. Average borrowers pay 15 days of interest.
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