If you are shopping for a home loan, you should receive a Good Faith Estimate (GFE) from each lender who extends a loan offer.
A Good Faith Estimate is a document that lists the approximate costs to a borrower for a particular loan. These fees will be paid at, or prior to, the loan’s closing. The GFE also lists other companies that will provide various services in connection with your loan, such as appraisers, closing agencies and insurance companies.
All the fees on a GFE are estimates. The actual costs may vary. Some of the fees on a GFE are within a lender’s control – in particular, those included in the 800 and 1100 lines – and may be negotiable. When shopping for a loan, it is these fees to which you should pay the closest attention.
The 800 Lines concern items that are paid in connection with the loan, and these items may be very different from lender to lender, both in how much the lender is charging, and in what the lender chooses to name the fee. To assist you in comparing loan offers, add up all the fees on the 800 lines and compare the totals, rather than attempting to take each fee by itself. What follows is a brief description of each line. Remember, your particular lender may refer to the fee by a name other than what is shown here.
801: The Lender’s Loan Origination Fee – this is the fee charged by the lender for extending the loan. This fee is usually calculated as a percentage of the loan amount.
802: The Lender’s Loan Discount Fee – this is a one-time fee the lender charges for the interest rate they are offering you. This is usually shown in “points,” with each point being equal to 1% of the loan amount. Points may be tax deductible, but you’ll want to consult your tax advisor on this.
803: The Appraisal Fee – this is a fee paid to the real estate appraiser for assessing the value of the property. Appraisals can vary in cost, depending on the area in which the property is located, and investment property appraisals tend to cost more.
804: The Credit Report Fee – this is the fee charged by a credit reporting agency to provide the lender with a borrower’s detailed credit report. Unfortunately, lenders must obtain their own, independent credit report, and are unable to use any prior credit report you may have obtained.
805: The Inspection Fee – this is a fee paid to a property inspector who will make sure the property is in sound physical condition.
There are other lines within the 800 series on a GFE, which a lender may use to charge other fees associated with the loan. Some of these fees are as follows:
The Tax Service Fee – this is the fee for a review of the property records at the Registry of Deeds. The records are reviewed to make sure the property taxes are paid up to date.
The Underwriting Review – this is the fee a lender charges for reviewing your loan application. The Yield Spread Premium – this fee is not paid by the borrower. This is a fee paid to the lender, by their investor, for closing the loan.
The Origination Due to the Broker – this is another fee paid to the broker. Like the fees charged on line 802, this fee is expressed as a percentage of the loan. The two fees combined (lines 802 and 814) equal the total amount of points you pay for your loan.
The Processing Fee – this is the fee a lender charges for processing your paperwork.
The Escrow Waiver Fee – this is the fee you pay if you decide to pay your taxes and insurance on the property separately from your monthly loan payment.
The 1100 lines are fees that cover various services that are performed by the closing agency (the company or attorney who helps in the loan closing). You may be able to negotiate these fees with the lender, or directly with the closing agent. Additionally, some states’ laws permit you to hire your own closing agent, which allows you to shop around for a better deal. We’ve provided a brief description of the 1100 line fees below.
1101: The Settlement of Closing/Escrow Fee – this is the fee paid to the escrow company in exchange for their handling all the financial transfers and payments associated with the loan.
1105: Document Preparation Fee – this fee covers the cost of preparing your loan documents.
1106: The Notary Fee – this fee covers the cost of notarizing several documents you’ll sign during the loan process.
1107: The Attorney Fee – if you live in a state that requires an attorney to handle a loan closing, this fee covers the cost of his/her services.
1108: The Title Insurance Fee – this fee covers the cost of insurance that guarantees your undisputed ownership in the property, and that there are no other liens against the property.
There is another fee, The Title Search Fee, which may or may not be listed separately within the 1100 series. If it is not listed separately, it is included in the fees listed in line 1101. This fee covers the cost to review the title history on the loan so that a new title insurance policy can be issued.
The lender or broker must provide a GFE to a borrower within 3 business days of the lender/broker receiving your loan application. This should provide you with enough time to compare loan costs and negotiate the best deal.