What Does It All Mean?
Before we discuss the topic at hand please allow me put the subject in context. You've filled out application. You're tired of answering questions. In fact you want to ask some of your own. Do you qualify for a loan and if so, at what interest rate?
We answer all those questions, in writing. To the best of our ability given the information you provide, we'll send you a written estimate. This standard form has the 'creative' name of Good Faith Estimate, or GFE. But be careful when comparison shopping for a loan. Some less ethical mortgage brokers, loan officers, and the non-standard treatment of terminology by lenders, makes the road from what is on the GFE to the items that ultimately go on the HUD-1 form appear to be a shell-game. Some lenders charge a bunch of separate little fees. Others charge fewer, but larger, fees. How do you make sense of it all?
What I like best are 'No Cost' loans. Despite what you may have been led to believe, there is no such thing as 'No Cost' loan. In fact, for every loan transaction there many professions--governmental and licensed private agencies--involved. Each activity has an associated cost. These costs are estimated on the GFE. The actual charges will be documented on the HUD-1 Form you'll sign at closing.
If we don't have all the information, our estimate is not going to be as accurate as it would be if we had all the facts at the beginning of the loan process. You've heard the expression, "garbage in, garbage out," haven't you? It certainly applies here.
Let's assume for the moment that all the information you provide is correct. Here are most common items found in the GFE. Prepaid items in Section 1000 are not considered to be part of closing costs. They are often included on GFE reports to show you a complete picture of your costs.
Also, be aware of the tax implications of these charges. Many are tax deductible. See the Tax Advantages of Home Ownership for more information.
In summary, the variables from lender-to-lender, missing information from you, the borrower, and the fact that the same items may not appear on everyone's GFE often make it impossible to obtain the true cost of a loan. We here at Lightning Mortgage make every attempt to provide Good Faith Estimates that are as accurate as possible. We try to avoid surprises at the closing table at all costs!
The actual loan amount, interest rate, and term of the loan are clearly spelled out on the top of the document. If you have further questions about your GFE, we'll be glad to review it with you.
The key to remember is that this report is only an estimate. If new information is uncovered or you want to change the terms of the loan then the amounts are subject to change. Compare this document to the HUD-1 Closing Document, which will list the actual amounts charged. Here is our entire Loan Process.
These items are payable in connection with the loan: |
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| Line | Heading | Description |
| 802 | Loan Discount |
Also known as 'Points.' A charge lenders use to adjust the yield of a loan. Par pricing has no loan discount fee. Most people will choose to borrow at the par rate because they want to keep the upfront costs of a loan low, but paying 'points' will often lower the total cost of the loan. *We at Lightning Mortgage have a great formula for determining when to pay points. Click on Sweet Spot. This is tax deductible (entire amount in first year on purchase, spread over life of the loan on a refinance). |
| 803 | Appraisal Fee |
A fee charged by an independent licensed appraiser that can range from $250 to $650, depending on where you are in the U.S. and the property involved. Investment properties and properties with values over $1,000,000 on non-commercial property usually cost more. Local independent appraisers who are familiar with your geographic area are used. They'll contact you directly, to arrange for the visit. It is our company policy for you to pay the appraisal fee at the time of the appointment. |
| 804 | Credit Report |
This is the fee charged by the credit reporting agency we use to pull a copy of your tri-merged credit report. |
| 808 | Mortgage Broker Fee |
This is the fee charged for brokering the loan. This is also tax deductible (entire amount in first year on purchase, spread over life of loan on refinance). The sum of lines 808 and 802 equal the total the amount of points due on your loan. |
| 810 | Processing Fee |
This is the charge for processing each loan package. A piggyback first & second loan combination will still have just one processing charge. |
| 811 | Underwriting Fee |
The lender must review and verify each loan to insure that it fully meets all the loan guidelines for the loan program. |
These items are required by the lender to be paid in advance: |
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| 901 | Prepaid Interest |
This is the interest charges for the number of days prior to the first day of the following month. This charge puts borrowers on a normal cycle of mortgage payments due on the first of the month. This amount on the GFE should be 30 days to start and will be adjusted accordingly at closing. |
| 902 | Mortgage Insurance Premium |
For borrowers who must pay Private Mortage Insurance or as it is called PMI, this is the cost of opening up the policy. Our take on PMI is that it can be avoided. We usually suggest home mortgage alternatives that do not require PMI. |
| 903 | Hazard Insurance Premium |
If a hazard insurance policy is not opened separately, this is the cost of opening a policy with an insurance company associated with the lender. |
| 905 | VA Funding Fee |
For borrowers who obtaining a mortgage using VA benefits, this is the premium for obtaining the loan. |
These items are associated with Impound/Escrow accounts: |
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| 1001 | Hazard Insurance Premiums |
If you choose to include hazard insurance with your monthly principal and interest payments (we highly recommend) then you may have to deposit the equivalent of 2-12 months of payments upfront depending on the date the payment is due. |
| 1002 | Mortgage Insurance Premium Reserves |
If you are required to pay mortgage insurance and choose to include them with your monthly principal and interest payments (recommended) then you may have to deposit the equivalent of 2-6 months of payments upfront. |
| 1004 | Tax Reserves |
If you choose to include property taxes with your monthly principal and interest payments (recommended) then you may have to deposit the equivalent of 2-6 months of payments upfront. |
These items are associated with property title: |
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| 1101 | Closing or Escrow Fee |
This fee is for performing the escrow process. |
| 1105 | Document Prep Fee |
The charge for preparing all the documents for signing, notarizing, and recording. |
| 1106 | Notary Fees |
The total for notarizing all signed documents requiring notarization. |
| 1107 | Attorney Fees |
Some states require an attorney handle the closing. If you live in one of those states this is our estimated fee for their services. The mortgage company does not set this fee, and you are free to negotiate this with the attorney you select to handle your closing. |
| 1108 | Title Insurance |
The cost of the title insurance policy. Its cost is based on the loan amount. |
| Courier/Wire Fee |
The fees for transferring documents and funds from one location to another. |
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These items are associated with property taxes: |
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| 1201 | Recording Fees |
To create a public record of your legal ownership of the property, the lenders notify the county government to record the transaction. The recording fee, which varies by state, is paid to the county. |
| 1202 | City/County Tax Stamps |
Stamps, affixed to the deed, showing the amount of transfer tax paid. Most states stamp the deed rather then actually affixing a stamp. Many localities collect a transfer tax whenever a property changes hands. |
| 1203 | State Tax Stamps |
Stamps, affixed to the deed, showing the amount of transfer tax paid. Some states collect a mortgage tax anytime a new mortgage is recorded. |
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