A Good Faith Estimate is an "estimate" given to the client during the process of applying for a mortgage loan. Real Estate Settlement Procedures Act (RESPA) requires that the Good Faith Estimate be provided within three days when a loan application is made. A Good Faith Estimate spells out what the loan charges are in order to procure the loan. The most important thing to take away with is this: A Good Faith Estimate is just that. An estimate in good faith.

With many different loan programs and lenders out there and the Good Faith Estimates as a tool to compare one lender to another, I'd like to take this opportunity in sharing my perspective on comparing good faith estimates from a consumer's standpoint:

There are major parts of the Good Faith Estimate that make up the closing costs:

• Lender's Fees
• Title Fees
• Government/ Recording Fees
• Prepaid Items
• Additional Fees

Lender Fees

Different lenders have different fee structures. Depending on whether you are trying to obtain a loan through a mortgage broker (who will go out to obtain the best loan for your situation) or a mortgage banker, each of them charge you very differently. One thing that I want to point out is the discount points and loan origination points. Discount Points are money you pay your lender to buy down the interest rate. Depending on how long you intend to live in the house, sometimes it is advantageous for you to pay the discount points to save in interest over the long-term. Discount Points are not to be confused with Loan Origination Fee. Loan origination fee is paid to the lender to originate ie procure the loan for you. Many lenders charge a loan origination fee but if you look hard enough, some don't and they give you a par rate.

Title Fees

Most of the time in a real estate transaction, the Title Company has already been pre-selected. Hence, the "final" title fees that you see on the Good Faith Estimate should not vary. If you ever see a difference on the Good Faith Estimate while comparing lenders, it is because they are doing their best in "estimating" the title fees. In order words, you could ignore the Title Fees when deciding which lender to use.

Government and Recording Fees

Similar to the title fees, these are fees paid to the individual institutions for proper recording of ownership. They will be whatever they are, so again, ignore these fees when you are making a decision on which lender to use.

Prepaid items

Prepaid items are interests, property taxes and insurance. Interest paid until the end of the month is determined by the number of days left in the month multiplied by the interest per day. So, this amount really depends on your interest rate and your loan amount. Reserved/ Prepaid Property taxes are pre-determined by lender's requirements. One bank may require 2 months of reserve while another bank may require 3 months of reserve. This is determined by the bank's reserve policy, not your lender.

Additional Fees

There are additional fees that make up a part of your closing costs. Fees like appraisal fee and credit report fee. The appraisal fee is usually a "pass-on" fee from the appraiser to your lender. Like different businesses, each appraiser charge different amounts. Some companies charge a credit report fee ie a fee to pull your credit to determine your credit worthiness. Some companies do not. Processing fees are charge to process/ manage your loan application. Whether or not your lender charges you these fees upfront depends on his company policy.

So, how do you make a good decision on which lender to use?

If it was me, I would ignore the items that would not make a difference like title, prepaids, government, recording fees. Then compare the lender charges. I would compare it alongside the interest rate.

Here is another observation:

Typically banks would charge lower fees but they make it up in higher interest rates when comparing to using mortgage brokers to procure the loan. They usually are more expensive in closing costs but they make up in lower interest rates.

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I proudly serve and sell real estate in the northern suburb cities of the Dallas metroplex. If you are thinking about purchasing or selling your home in neighborhoods of Frisco, Plano, Dallas, McKinney, Allen, Little Elm, Prosper, Celina, Richardson, Dallas M-Streets, Dallas White Rock Lake area and other surrounding areas and more importantly, want to work with a local area expert, contact me at your earliest convenience.

It is a competitive market, hence it is important that you choose to work with the realtor who knows these communities like none other. I employ a systematic market approach in selling your home - an intentionally unique proposal that most real estate agents do not use. If you care to be on your way to a successful closing, contact me immediately to see how different my proposition will be.

Contact:
Loreena Yeo
Realtor®/ Broker of 3:16 team REALTY
(214) 783-2210
loreena@loreenayeo.com