Five Things You Should Know About GFEs
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Five Things You Should Know About Good Faith Estimates (GFEs) Beware! Not all GFEs are created equal. Here are five things you should know about page 2 of the GFE, where all the closing costs are itemized. #1 - Block A is Very Important
This section outlines all the fees charged by your bank, credit union, mortgage lender, or mortgage broker. These fees are generally negotiable. For example, you can choose to pay less fees in exchange for a higher interest rate on your mortgage. Alternatively, you can choose to pay more fees in exchange for a lower rate on your mortgage. This is probably the most important part of the closing cost itemization because you have control over how much or how little to pay based on the lender and loan program that you choose. #2 - Block B Items 3-6 Are Third Party Closing Costs
This section outlines all the fees charged by third parties such as appraisal and title companies. These charges may vary slightly from one lender to the next. However, they are generally very similar across the board. For example, in many states, title insurance rates are set by the government and are calculated based on your loan amount. #3 - Block B Items 7-8 Are Government Charges
Neither you or the mortgage company have any control over how much the government is charging for transfer taxes or recording fees. These charges should be the same from one GFE to the next. If you find a GFE that has lower fees than the rest, it's likely that the lender or broker who gave you that GFE is trying a "bait and switch" tactic by promising artificially low government charges when they know the actual government charges will likely be higher than what they are quoting you.
#4 - Block B Items 9-11 Are Prepaid Items
These are NOT closing costs. The amounts in items 9-11 should be the same from one GFE to the next. If you find a GFE that has lower amounts than the rest, it's likely that the lender or broker who gave you that GFE is playing games with you by promising artificially low amounts when they know the actual amounts will likely be higher at closing. For example, item 9 is the initial deposit you are making into your escrow account for taxes and insurance. The higher your initial deposit in your escrow account, the better off you are because this means that your escrow account is likely to be fully funded and your monthly payment is not likely to go up in the future. However, if the mortgage lender underfunds your escrow account initially, your monthly payment is likely to go up in the future to cover the shortfall. We've even heard reports of lenders and mortgage companies who underestimate what you need in your escrow account on the GFE, and then increase the amount at closing. Other companies underestimate the amount you need in item 10. For example, if your closing takes place on the 1st of the month, you'll need to pay 30 days of interest at the closing. If your closing takes place on the 25th of the month, you'll only need to pay 5 days of interest at the closing. Lenders who play games put 5 days of interest on the GFE. On the other hand, lenders who look out for you help you to budget more conservatively by putting 25 or even 30 days of interest on the GFE. Again, item 10 is NOT a closing cost. It's simply pre-paid interest on your mortgage that will vary based on the day of month that you close. Remember, mortgage interest is calculated in arrears (backwards). This means that if you close on the 5th of the month and pay 25 days of pre-paid interest at the closing, you'll skip next month's mortgage payment. Your first mortgage payment will be due approx. 55 days after the closing. #5 - Points and Closing Costs Paid by the Seller Still Have to Be Listed on the GFE
In some cases, you may negotiate for the seller to pay some or all of your points and closing costs. Unfortunately, the government did not put any place on the GFE where we can show you what costs are being paid by you vs. costs that are being paid by the seller.
Five Things You Should Know About Good Faith Estimates (GFEs) Beware! Not all GFEs are created equal. Here are five things you should know about page 2 of the GFE, where all the closing costs are itemized. #1 - Block A is Very Important
This section outlines all the fees charged by your bank, credit union, mortgage lender, or mortgage broker. These fees are generally negotiable. For example, you can choose to pay less fees in exchange for a higher interest rate on your mortgage. Alternatively, you can choose to pay more fees in exchange for a lower rate on your mortgage. This is probably the most important part of the closing cost itemization because you have control over how much or how little to pay based on the lender and loan program that you choose. #2 - Block B Items 3-6 Are Third Party Closing Costs
This section outlines all the fees charged by third parties such as appraisal and title companies. These charges may vary slightly from one lender to the next. However, they are generally very similar across the board. For example, in many states, title insurance rates are set by the government and are calculated based on your loan amount. #3 - Block B Items 7-8 Are Government Charges
Neither you or the mortgage company have any control over how much the government is charging for transfer taxes or recording fees. These charges should be the same from one GFE to the next. If you find a GFE that has lower fees than the rest, it's likely that the lender or broker who gave you that GFE is trying a "bait and switch" tactic by promising artificially low government charges when they know the actual government charges will likely be higher than what they are quoting you.
#4 - Block B Items 9-11 Are Prepaid Items
These are NOT closing costs. The amounts in items 9-11 should be the same from one GFE to the next. If you find a GFE that has lower amounts than the rest, it's likely that the lender or broker who gave you that GFE is playing games with you by promising artificially low amounts when they know the actual amounts will likely be higher at closing. For example, item 9 is the initial deposit you are making into your escrow account for taxes and insurance. The higher your initial deposit in your escrow account, the better off you are because this means that your escrow account is likely to be fully funded and your monthly payment is not likely to go up in the future. However, if the mortgage lender underfunds your escrow account initially, your monthly payment is likely to go up in the future to cover the shortfall. We've even heard reports of lenders and mortgage companies who underestimate what you need in your escrow account on the GFE, and then increase the amount at closing. Other companies underestimate the amount you need in item 10. For example, if your closing takes place on the 1st of the month, you'll need to pay 30 days of interest at the closing. If your closing takes place on the 25th of the month, you'll only need to pay 5 days of interest at the closing. Lenders who play games put 5 days of interest on the GFE. On the other hand, lenders who look out for you help you to budget more conservatively by putting 25 or even 30 days of interest on the GFE. Again, item 10 is NOT a closing cost. It's simply pre-paid interest on your mortgage that will vary based on the day of month that you close. Remember, mortgage interest is calculated in arrears (backwards). This means that if you close on the 5th of the month and pay 25 days of pre-paid interest at the closing, you'll skip next month's mortgage payment. Your first mortgage payment will be due approx. 55 days after the closing. #5 - Points and Closing Costs Paid by the Seller Still Have to Be Listed on the GFE
In some cases, you may negotiate for the seller to pay some or all of your points and closing costs. Unfortunately, the government did not put any place on the GFE where we can show you what costs are being paid by you vs. costs that are being paid by the seller.
