Section B of Page 2 of the Good Faith Estimate (GFE) has 9 parts. Let's go through them.
Item 3 will be a list of required services that the lender will select. These are services necessary in order to complete your transaction. These charges are subject to a 10% tolerance at settlement, meaning that they may be up to 10% higher (but ONLY 10% higher) at settlement.
It is my understanding that the TOTAL of all items listed in these categories is subject to a 10% difference at closing. In other words, an individual item may in fact cost more than 10% more at settlement, but if another item or items from that section cost less than they were quoted, and the total costs for all items in that section still fit within the 10% tolerance, it can be allowed.
The good news is that lenders who want to be the most competitive may begin to shop around themselves for lower cost providers for these services, in order to keep the total costs they quote down as low as possible, making them look like a better option in a comparison.
Item 4, Title Service and Lender's Title Insurance is a total of ALL title charges except Government Recording charges (which are listed in Item 7). This item is also subject to a 10% cap at settlement, but only if the lender selects the title company or if you select a title company identified by the lender. If you choose your own title company, (not a company identified by the lender) there is no cap on the amount you may be charged at settlement. (Of course, you are most likely to select a company that will cost you less at settlment, but should you choose a more expensive company, the lender cannot be held to the estimate they quote you for using a lender identified company.)
Item 5 is the cost of Owner's Title Insurance. In some states (including Utah) this is most often paid for by the Seller. Even in such an instance, this fee will be listed on the Good Faith Estimate (GFE). Just remember that if this is true in your transaction, you may be able to deduct this amount from your total loan costs for the purposes of determining the cash you need to close the loan.
This item can also increase up to 10%, but once again, only if you (or the Seller) use a lender identified company. Otherwise there is no cap.
Item 6 are the required services that you can shop for. These are services that may be necessary for your transaction. These may include such things as:
- Pest Inspection
- Home Warranty
These are just examples and are only subject to a 10% tolerance if you use lender identified companies.
Item 7 are the total of Government Recording Charges. These may also increase up to 10% at Settlement.
Item 8 are Transfer Taxes. Fortunately, in Utah, we don't have these. There are some states that do. If your transaction requires payment of a Transfer Tax, there is ZERO Tolerance on this item. It must be the figure you will be charged at settlement.
Item 9 explains the initial costs of setting up your escrow account. (These are your deposits into the account to cover property tax and insurance disbursements.) These are not subject to a cap, as the account will simply need to have enough money in it to pay such disbursements when the time comes. Still, most lenders should be able to get this figure pretty close to what it will be by estimating which month of the year you are likely to close in and the lender's own requirements for escrow account reserves.
Item 10 is the daily interest charge for your loan. Although the TOTAL amount listed here is not subject to any tolerance cap (because it will depend on which day of the month you close whether there are 0 or 30 days of interest charged) the daily amount of interest you will be charged cannot change (as it is a factor of your interest rate).
Item 11 is the cost of Homeowner's Insurance. A borrower usually pays a full year of premium up-front. This item is not subject to a 10% cap, as the borrower is able to select their own insurance and coverage level. (Coverage level must be adequate to protect the collateral for the loan, and usually is subject to approval by the lender.)
Page 3 of the new Good Faith Estimate (GFE) form contains Instructions, an optional Trade-Off table, and a Shopping Chart, as well as a disclosure that your loan may be sold after settlement. We'll cover page 3 next week.