January 07, 2015

In Good Faith

Closing Costs - Good Faith Estimate

Closing costs (also called settlement fees) on a $200,000 home loan average around $2,539 according to a recent survey by Bankrate.com. Your costs may be more or less depending on a variety of factors, including where you live. It's important to review and understand your closing costs before you commit to the loan. That's where the Good Faith Estimate comes in.

Three business days after submitting your completed mortgage loan application, your lender must provide you with a Good Faith Estimate (GFE) that outlines your loan terms and the fees that will be due at closing. Review the GFE carefully, go over the list of fees with your lender, and ask questions to make sure that you have a clear understanding of what you are paying and why.

On the summary page of the GFE you will find:

  • Summary of Your Loan — defining the initial loan amount, loan term, interest rate and initial monthly payment. This section also includes important information indicating if your interest rate can rise, if your loan has a prepayment penalty, and more.
  • Escrow Account Information — including prepaid items such as your property tax and homeowner’s insurance that your lender may require you to include in your monthly payments.
  • Summary of Your Settlement Charges — summarizing charges for origination fees, discount points, appraisal fees, title charges, etc. Page 2 of the GFE provides a more detailed listing of these fees.

It is important to remember that the GFE is only an estimate, and the actual charges may differ. Page 3 of the GFE explains how much certain fees can change between the estimate and actual costs.

At your closing, you will receive a HUD-1 Settlement Statement, a form that lists your actual costs. Compare the charges on the HUD-1 with the charges on your GFE to ensure that they have not dramatically changed. If they have changed, be sure to get a clear explanation of why.

Get more information on understanding your costs.

By the way, the Consumer Financial Protection Bureau has announced a new Loan Estimate Form that lenders will begin using later this year. This improved form combines the information currently found on the Good Faith Estimate and the early Truth in Lending disclosure.

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