The federal government has taken positive steps over the last few years to regulate the disclosure requirements for mortgages from lender to consumer. One of these is the implementation of the Good Faith Estimate (GFE), which is mandated for lenders to provide you once you have made a formal application. The down side is that this 3-page standardized form can actually make the numbers more confusing (in my humble opinion). Because lenders know this, most will give you some type of Fees Worksheet in addition to the GFE so you can see the entire transaction in a more basic format.
The GFE (or Fees Worksheet) provides you with a comprehensive picture of the entire transaction (if done properly by your lender). On the typical Fees Worksheet, you will see everything from the purchase price to the interest rate, all the closing costs, down payment, the mortgage payment, and the cash needed for closing. The worksheet is usually broken down into these sections:
1. The lender section – this includes the fees that the lender charges to originate your loan. These typically include application fees, processing, underwriting, wire fees, origination fees and points. Ask your lender to show you which fees on the estimate are “their fees” so you can compare with other lenders.2. The third party fees directly related to the financing - these will include the appraisal, credit report, flood certification, and any mortgage insurance premium applicable to your loan. These should be easy to compare. The lender does not mark up these fees; they are what we call “pass-through” expenses, but they can be different between lenders, depending on who they use.
3. Title Company’s fees - these will include the attorney fee, abstract, lenders and owner’s title insurance, and other fees that the title company incurs to process the transaction. You get to pick your title company for settlement, so you have control over these fees, but a good lender will use conservative estimates in this section to make sure you are seeing realistic numbers.4. Miscellaneous costs that you will likely incur, but are up to you to decide who you will use, and how much you will pay. These items include things like the home inspection, termite report, and realtor admin fee. Again, a good lender will show these items on the estimate so you can see everything you will incur, even though they may not be required.
5. Lastly, ‘prepaids’ and reserves - these are the property taxes, homeowner’s insurance and prorated interest. Because taxes and insurance are paid in advance, there is a certain amount that has to be collected at settlement to reimburse the seller for taxes prepaid, as well as a cushion in your escrow account to pay the next bill when it comes due. Make sure your lender goes over this section in detail with you so you understand how this works. This is probably one of the most confusing components of the estimate. If your lender is good, they will explain it in a way that makes complete sense.The end result of understanding your estimate is that you will know exactly what to expect from a ‘cash out-of- pocket’ standpoint as well as what your mortgage payment will be. It will also give you the tools you need to compare lenders and see what you are really paying. You will find that there is much more to it that just simply an interest rate.
Fortunately, the Stuart Epstein team knows how important it is to educate our customers and we take time to go over the estimate and make sure you are well informed and comfortable with all the numbers. Our job is to take away stress from the process, rather than add to it. We have mortgage solutions for everyone, from 1st time homebuyers to seasoned investors. We lend in Maryland, Virginia, West Virginia, Pennsylvania, and Delaware.
Let us become your mortgage consultants for life!
