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Documents you Need
Steps in the Mortgage Process
Good Faith Estimate
an example
Good Faith Estimate
what to expect
RESPA - the Real Estate Settlement Procedures Act
What controls and governs the mortgage process
What NOT to do after you Apply
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The
Good Faith Estimate
What to Expect, What should not be there!
So, you've got your Good Faith Estimate and you are wondering what all
these darn "fees" are!
Or, maybe worse, you received a Good Faith Estimate in the mail that just
doesn't compare to what you have heard on the phone! Is this a "bait
and switch" mortgage broker trick?
What you should expect to see, what fees are normal and where a bank or
broker can "slip in" a few extra bucks are all included in this
article.
Simple, straightforward and to the point.
The
Sections of a Good Faith Estimate
While this document may seem confusing, three sections will be the same
no matter where you go. These are the 900's, the 100's and the 1200's.
The other 3 sections can change from lender to lender, although the 1100's
and the 1300's are actually 3rd party fees such as closing fees and inspection
fees. A lender cannot increase these fees to make money, but a good lender
will help you by finding competitive costs on these fees and not
just sending the business to his buddy who charges more than everyone
else.
The one section where a lender, bank or broker can make more money is
the 800's. This is the section where any "junk fees" are added
in.
As shown in the article An example of a Good
Faith Estimate here are the six sections of a Good Faith Estimate.
| 800's | The Lender Fees |
| 900's | Pre-Paids (Interest and Insurance) |
| 1000's | Escrows |
| 1100's | Title Fees and Closing (or Attorney) Fees |
| 1200's | Taxes on the Transaction |
| 1300's | 3rd Party Inspections |
In order to make a quick and easy comparison of which lender is charging you the most for your mortgage, simply add up the fees in the 800's and the closing fee (or Attorney Fee) and compare!
Types of Fees a Lender, Bank or Broker will charge
The following is a breakdown of the different fees that you may see in the Lender Fee's Section and examples of how much is appropriate or "normal"
- Bank Fees - What the bank or lender charges for a mortgage
- Broker Fees - What the broker charges to do your loan
- Points - Discount points or Origination Fees
What you can Expect
Bank Fees
Each Bank or Lender charges fees in order to process and approve your loan. Whether you go to your corner bank, go through a broker, or scour the internet looking for a bargain, you will pay these fees unless you opt for a no-cost loan.
For conforming loans these fees are in the $500 - $700 range.
Non-Conforming or Sub-Prime banks often charge more, with fees of $1100 or more. This is because sub prime lenders have to do everything by hand and often require exceptions, explanation letters and generally more work in approving a loan.
Lender fees are becoming more of a lump sum charge so they are easy to distinguish, but many banks still separate the total amount into portions. The reason for the empty spaces that are filled in is to make room for the differently named fees that lenders may charge.
Most commonly, you will see underwriting fees, processing fees, flood certificates and tax service fees. Other fees from Sub-Prime Banks and Lenders that are normal are Administrative fees and at times document preparation fees.
Since Lender Fees are passed on from the lender itself, this is not somewhere that fees are inflated and passed on to borrowers. That is not acceptable or legal.
Note that some banks and lenders will offer a lower rate, but have higher fees. You really need to trust your mortgage professional to get you the best combination of rates and fees. As you can see these fees can vary widely from lender to lender and this is certainly a time when doing business with a broker is to your advantage since they can shop for that best combination for you.
Broker Fees
A typical Broker Fee will be in the $300 range and will be noted as a processing or administrative fee. These fees are generally used to defray the costs of the in-house underwriter or processor and a fee in this range is certainly acceptable.
However, these are the fees that can be inflated and are used to "pack" the profit margin with Doc Prep fees or perhaps a processing AND an administrative fee.
Yes, unfortunately, these fees can have the same name as the lender fees so you must ask what each fee is for and who it is paying as you review the Good Faith Estimate. It doesn't hurt to put a "L" for lender and a "B" for broker next to each fee to add up each type of cost.
Fees certainly vary from one company to another and these fees can vary also, but an extra $500 stuck into a fee should be questioned and a darn good explanation be had!
A note on Application Fees
You will hear from some people that you should not pay an application fee, and if that application fee is not designated for an actual bill, I agree entirely.
If the application fee is used to pay for an appraisor or a credit report, this is entirely acceptable.
One option that can assure you of where the money is going is if you can simply pay the appraisor COD, rather than pay the mortgage company to pay the appraisor, then you know exactly where your money is going. Ask if this is a choice if you question where the money is going.
Unfortunately, this is another place where some mortgage professionals will add a little extra by charging an application fee. You might hear fees quoted at a lower price WITH an application fee in addition to the fee that makes that mortgage person's costs add up to just as much.
From the mortgage persons point of view, if a customer puts in an application and an appraisor performs the appraisal. The appraisor has to get paid. Whether you change mortgage companies or not, you have requested a service and you are now obligated to pay for that service. This is why appraisals are required to be paid for up front.
If you change companies, and you have paid the appraisor directly, you can take that appriasal with you. This is the best option for both the consumer and the mortgage companies.
I believe that most people do not have the intention of leaving a mortgage company with a bill while they take their business somewhere else, they just want the best rate and fees combination. Please do everyone involved a favor and pay for these appraisals COD.
Points
Simply put, any discount fees or origination fees should be discussed and agreed upon up front.
For a conforming loan, there is nothing wrong with your mortgage professional saying something like "The bank is going to pay me 1 point and you will pay 1 point" or "I am giving you the par rate that I pay and you will pay me 2 points" as long as this is discussed up front and you get a choice of which rate to pay.
Discount or Origination fees can be in a dollar amount as well as in the form of a point.
With sub-prime loans, you can expect to pay 1 to 2 points due to the additional work involved in getting a sub-prime or bad credit loan approved.
Even with a sub-prime loan, you should always ask what the rate would be if you paid another point upfront as a lower rate lasts for years to come and the additional points are tax deductible.
Unfortunately, the "bait and switch" mortgage people who will play mortgage broker tricks will use this category to throw in additional costs.
Watch for someone who "conveniently" put a 1% or 2% in the origination fee line, but "forgot" to transfer this into a dollar figure on the good faith estimate. If you run into this, run away as fast as you can. Nobody simply forgets to write down a number as big as one or two percent or your loan. This is done on purpose and is taught in certain circles.
3rd Party Fees
Much like the Lender fees, these are simply passed on and are justified with bills that must be submitted. There is really no worry about these fees being out of line.
You can expect to see 3rd party fees such as an appraisal, closing fee, title insurance or title search or courier or overnight fees to get the check to your lender to pay off the last mortgage..
Appraisals are pretty much standard although if conditions require it or you have a million dollar house, two appraisals may be required.
The closing or settlement fee is charged by the title company or attorney to conduct the closing and make sure all the checks are accurate the old mortgage is paid off in a refinance and the original documents you sign are properly recorded and forwarded to your new bank or lender. This fee can vary from company to company.
Title Insurance is the same from title company to title company as title insurance is a state computed number that is mandated to be the same.
Prepaids and Escrows
This can be a big number, so make sure it has been figured accurately. A broker, bank or lender cannot change the amounts you pay for these, but this is a common place for a beginner to make a mistake!!
Prepaid Interest
For prepaid interest, the number will not vary by much and all depends on what day of the month you close. A general figure of 1/2 month of interest to your new bank will be used until the closing date is known.
Don't forget that during a refinance, you must pay interest to the bank you are paying off for the number of days that they will hold the loan. If 1/2 month goes to the new bank, then 1/2 month's interest is paid to the old bank and added to the payoff amount on your loan! I am sure you can see that 1/2 a month's payment can make those numbers inaccurate.
Escrows
The purpose of escrows is to have enough in the escrow fund to pay the tax and insurance bills when they come due. This is not somewhere that a mortgage person will be able to add in extra, but it definitely is a spot where the numbers can be wrong.
When estimates are used for escrows, this number is often based at the application on the number that you give the mortgage professional and is estimated at approximately 1/2 of a year's tax bill. This estimate is only accurate when all tax bills are equal.
Depending on the time of year, Escrows can be misfigured due to a lack of information at the time the Good Faith Estimate is completed. They will be accurate as soon as the title insurance is completed since part of the titlework includes the tax bills.
So, don't blame the mortgage person if you tell them your taxes are $2,000 a year and they are really $5,000 a year. As I mention in Documents you need, you should dig up your tax bill for the application. At the least, call the city and get accurate tax bill numbers before going to the application meeting so that your escrow fund will be computed accurately.
As an example of the 1/2 a years taxes estimate being inaccurate, If you live in a city where the taxes are divided and are much larger in one portion than the other this estimate will NOT be accurate.
Let's say you have a winter tax bill (due in December) for $4,800 and a summer tax bill (due in July) for $500. The estimate would be half of $5,300 or $2,650 on the good faith estimate.
Now, let's say that the closing is in September and your first payment is due November 1.
For the Summer portion of the escrow fund you would need to put in 3 months or 1/4 of the summer taxes since you will make payments from November to July to fill up the $500 needed to pay the next tax bill. That 1/4 of the bill would be $125.
For the winter portion, you will only make a payment in November and December to fill up your winter escrow fund. You need to put the other 10 months in the fund at the closing in order to have enough to pay the bill when it comes out in December. This amounts to another $4,000 that must be put into the escrow fund!
As you can see, $4,000 plus $125 is $4,125 that would be needed to pay your tax bills. The estimate of $2,650 would leave you with a $1,500 surprise addition to your closing costs! Ouch!
A simple phone call to the city to get the real numbers or bringing your tax bill can make sure this is not a surprise you get.
Summary
Mistakes on a Good Faith Estimate can certainly be made, but a good mortgage professional will let you know well ahead of the closing of any mistakes.
Numbers can change if a different lender is used that was originally planned for.
Escrow funds should be carefully watched.
Origination fees, Application fees and processing or Doc Prep fees are the fees that are used when a mortgage person is out to trick you intentionally.
I hope that this article has been helpful.
|
Harry
Smith
email Harry@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-514-9000 |
Drew
Smith
email drew@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-703-7770 |
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