My New Blog

You've worked hard to save up an adequate amount of money for a down payment on a house, and you're finally ready to close on your first home. You've found the right house, and it looks like you can manage the monthly payments. Then you receive a copy of the Good Faith Estimate (GFE).

A Good Faith Estimate of settlement or closing costs lists the expenses you're likely to have to pay at closing. Because these fees and expenses can add up to a significant percentage of the purchase price, it's important to consider the fees related to closing when choosing a lender. An experienced Orlando mortgage broker will tell you to not focus on interest rate alone.

Federal law requires that a potential lender provide a Good Faith Estimate to you within three days of applying for a mortgage. Regrettably, there's often a large inconsistency between the estimate and what you actually end up paying. Recent changes in Federal regulations seek to correct this, but the jury is out on the effectiveness of these changes.

Some unprincipled lenders deliberately under estimate costs in order to get your loan, knowing that by the time you see the actual amounts, you'll be so involved in the process that you won't walk away from purchase and look for another lender. The US government is working on making changes to the law to force lenders to be more accurate on the good faith estimates and now requires lenders to provide borrowers with a closing statement three days prior to the closing. In addition, borrowers must be notified at the beginning of the loan process that they are not required to close on the loan if they do not want to.

Typically, closing costs run between 3% and 5% of your loan amount, so if you're borrowing $100,000 you can expect closing costs of $3,000 to $5,000. If you're borrowing $200,000 you can expect closing costs of $6,000 to $10,000.

The wise thing to do is to obtain good faith estimates from several lenders and compare the costs. Then be prepared to ask the lender you choose to meet the best offer. Here are some of the items you will find on a Good Faith Estimate:

Loan application fee ($75 to $400)

Loan origination fee (1% of the amount borrowed, or $100 for every $10,000 borrowed)

Points (to "buy down" the interest rate: between $100 and $300 for every $10,000 borrowed)

Appraisal fee

Credit Report

Mortgage broker commission or fee

Lender's inspection fee

Tax service fee

Processing fee

Underwriting fee

Wire Transfer fee

Interest from the day of settlement to the date of the first mortgage payment

Private mortgage insurance premiums to protect your lender ($750 to $1750)

Hazard insurance premiums

Property taxes from the day of settlement to the end of the tax year

Settlement or closing/escrow fee

Document preparation fee

Notary fee

Title search and title insurance to protect your lender ($400 to $600)

Title insurance to protect you

Recording fees

Tax stamps

Pest inspection

Lender's attorney fees

Buyer's attorney fees

Property taxes placed in an escrow account are one of the biggest expenses at closing. The amount depends on the value of the house you buy and the tax rate in the town or county where the house is located. Often lenders require you to include a monthly estimate with your mortgage payments equal to 1/12th of your annual property taxes and homeowners insurance. For most people, this is easier than coming up with a large lump sum each year when taxes are due.

Educate yourself about the ins and outs of home buying before you start looking for your first home. Don't be taken advantage of at closing, and don't go to closing unprepared.