How to Read a Good Faith Estimate:
It's more than just a list of fees!
If you haven't read the first two installments on this topic, I encourage you to do so. They are quick reads and should help you understand the Good Faith Estimate (aka: G.F.E.) up to this point. Both links below open a different window.
How to Read a Good Faith Estimate ... Part 1
and
How to Read a Good Faith Estimate ... Part 2
In this installment we will discuss the following sections:
- Section 900: ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE
- Section 1000: RESERVES DEPOSITED WITH LENDER
Before we begin, let's have another look at the GFE. The sections being addressed in this entry are outlined in the red block below:
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The items in these sections depend ENTIRELY on the kind of loan program you are getting.
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Section 900: ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE
901: Interest for _____ days @ $_____ per day - By law, when you first make application, your Mortgage Professional must (let me reiterate that), MUST include 15 days worth of interest in this section.
* * * This is a Federal law and DOES NOT depend on where your property is located. * * *
902: Mortgage Insurance Premium - This section is reserved for "Up Front Mortgage Insurance" on an FHA loan.
903: Hazard Insurance Premium - This section is reserved for your "Hazard" (aka: Homeowner's) Insurance. Line 903 should have a dollar amount on it only if you have to pay a full year at time of closing.
For example, on a purchase transaction, your lender will require that you have a Hazard insurance policy in effect at time of closing. Insurance companies require that you pay in advance. This line is to set aside those fees.
On a refinance transaction, there would be a number on this line only if your policy is due to renew at time of closing.
904: Blank
905: VA Funding fee - If you are Military Personnel (past or present) and you are using your benefit, this line is reserved for the funding fee due to the VA. The fee is listed here to identify it, but is later rolled into the loan amount and funded into the life of the loan. The amount of the Funding Fee varies depending on whether you have used your VA benefit before, if you are disabled Military, etc.
Section 1000: RESERVES DEPOSITED WITH LENDER
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Section 1000 is only filled out if your lender is going to be paying these items on your behalf (aka: an Escrow Account). In the states of Idaho and Washington, lenders will only allow you to pay these items yourself if you have less than 80% loan-to-value. Meaning, you owe 80% or LESS than what the property is worth.
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1001: Hazard Insurance Premium - Homeowner's insurance
1002: Mortgage Insurance Premium Reserves - Monthly Mortgage Insurance, if applicable.
1003: School Tax - only if applicable. I have never seen this for Idaho or Washington.
1004: Taxes and Assessment Reserves - only if applicable. I have never seen this for Idaho or Washington.
1005 Flood Insurance Reserves - only applicable if your property is located in a Flood zone.
Blank Lines: Ask your Mortgage Professional about any items you see on these lines.
* * * IMPORTANT NOTE: * * *
Due to Federal laws, the greatest amount of reserves a lender
may hold in escrow at one time is 2 MONTHS.
Therefore, the greatest number you should ever see
on any of these items is 2 MONTHS worth.
They may hold less, but they CANNOT hold more!
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To learn more about the GFE, please stay tuned for future installments in this series.
Maryellen Garasky
Mortgage Broker
KMG Mortgage Group
(208) 664-3600
(509) 638-3455
www.kmgmortgagegroup.com
;)
;)
Maryellen - Another good post! Actually, I liked the whole series because every part is extremely vital info that the consumer and prospective homebuyer needs to know. I've said it before and I'll say it again, it is absolutely shocking how some people choose their lender/LO based on this one piece of document that can filled with absolute crap.
The problem is that most people don't know what they're looking at when they get a GFE and if no one takes the time to explain it to them (like you have done so well with your series) this piece of paper will be absolutely worthless.