Lenders must send you a Good Faith Estimate (GFE) within three days of receiving your application for a mortgage.
The GFE is supposed to help consumers by summarizing all of the loan’s key terms, from the interest rate to closing costs.
But the federal Real Estate Settlement Procedures Act, which spells out what the GFE must include, does not require lenders to use a simple, standardized form.
As a result, they create GFEs that are about as easy to read as hieroglyphics, making it hard for borrowers to confirm that they’re getting the loan their bank officers or mortgage brokers promised.
The easiest way to overcome that is by asking these 10 simple questions — and finding the answers on your GFE.
If the terms aren’t what you expected, if the fees are surprisingly high or if you can’t locate the information you need, take those issues to your loan officer or mortgage broker.
Now’s the time to get things right and avoid any nasty — and expensive — surprises.
Question 1. What type of mortgage am I buying, a fixed-rate or adjustable-rate loan?
An astonishing number of home buyers who took out adjustable-rate loans in the early 2000s thought they were getting fixed-rate loans. They were shocked when their payments began to rise — often beyond what they could afford.
You’ll find the answer toward the top of most GFE forms under “Loan Program” or “Type of Loan.” Some forms have boxes labeled with the different type of loans each lender offers. Make sure the check mark is in the right box.
Question 2. What’s my interest rate?
Borrowers also have complained that the interest rate on their paperwork is higher than one they were quoted when they applied.
Your interest rate can change until your application is approved and you lock in your rate, usually 30 to 45 days before closing.
But when rates go up — or down — you should hear about it from your loan officer. There should be no surprises on the GFE.
Question 3. How much cash will I need at closing?
Sometimes called the “Total Estimated Funds Needed To Close,” this number usually appears near the bottom of the GFE and includes closing costs and other expenses you must prepay, such as hazard insurance and taxes.
If this is more than you expected or can afford, tell your loan officer or mortgage broker. You may be able to roll part of the closing costs into the amount you borrow or obtain a different type of loan.
Question 4. How much am I borrowing?
The “Total Loan Amount” (sometimes called the “Proposed Loan Amount”) is usually stated toward the top of the form. It should be what you expected.
If it’s more than you requested, the lender has probably rolled some of your closing costs into your loan.
That’s OK, if you don’t have enough cash to pay for all of your fees. But you need to know exactly what charges are being added to your balance.
Question 5. What’s my loan origination fee?
Most GFEs have numbered lines that correspond to the government-mandated lines on the settlement statement that you sign at closing.
The “Loan Origination Fee” (line 801) is at the top of the list and covers the lender’s administrative costs for processing your loan.
Origination fees run between 0.5% and 2% of the loan amount ($1,000 to $4,000 on a $200,000 loan). The best deals charge a fixed fee of $1,000 or less, regardless of the loan amount.
Question 6. Am I being charged points?
Line 802 is the “Loan Discount Fee” (often called discount points, because the fee is a percentage of your loan amount). Discount points are interest you prepay at closing in exchange for a lower interest rate on the loan.
Typically, one discount point (1% of the loan amount) decreases the interest rate by 0.25% on a 30-year mortgage.
Some loan officers or brokers offer artificially low rates to win your business. They try to make the money back by charging points. If they never mention points when quoting your rate, there shouldn’t be any points on the GFE.
Question 7. How much am I paying for an appraisal?
The answer will be on Line 803, and it shouldn’t be more than $200 to $500.
Question 8. What is my mortgage broker’s fee?
If Line 808 shows you’re paying no fee, then your broker is almost certainly receiving a commission from the bank or mortgage company financing your loan.
When the loan doesn’t include a commission, mortgage brokers usually charge customers 1% to 2% of the amount they’re borrowing. That fee is negotiable, so don’t hesitate to seek a reduction if you’re being charged 2% or more.
Question 9. How much am I being charged for processing and underwriting fees?
A processing fee (Line 810) is typically less than $400 and covers time and materials for handling loan paperwork, such as gathering documents and ordering the appraisal.
An underwriting fee (Line 811) is $500 or less and covers the cost of reviewing your loan application, including your credit report, employment history, financial documents and appraisal to determine whether the lender wants to approve your loan.
If you don’t see these items on your GFE, the lender has bundled them in another fee.
If you see other items in Section 800 with names like “Application Fee,” “Courier Fee,” or “Administration Fee,” ask the lender what each is for and whether it can be waived.
Question 10. What am I being charged for title fees?
Section 1100 covers costs related to the closing and title to the property and may be negotiable. For example, you might see a line labeled “Closing Fees” or “Attorney’s Fees,” which represent what the attorney or title company charges to handle the closing.
The closing agent gathers all the documents you must sign, walks you through the process and then makes sure the money you pay gets to the appropriate parties.
Sometimes title costs include a title search, which pays for the title agent checking for problems with title to the property. Lenders require title insurance, which protects them in case a problem with the title arises later on.
In some states, you can choose the closing agent, which gives you an opportunity to find someone with lower fees and better service. However, lenders often obtain lower rates because of volume discounts.
Keep in mind, the GFE is just what it says, an estimate. Your final costs — including the interest rate, as we said before — may be different.
But they shouldn’t be a lot different. Much of the information on the GFE will be copied right onto the settlement forms you sign at closing, at which point you’re stuck with those terms.
It’s a good idea to ask your lender for a copy of the settlement form a day before your closing, so you can confirm that all the information is correct. Ask the lender to correct any incorrect information before you go to the closing.
