Home / Columns / Good-faith estimates

Good-faith estimates

signing-gym-contractThe Good Faith Estimate (or GFE in my world) offers an estimated cost for the mortgage, as well as the mortgage terms. It’s the document I always send to customers when I quote them a rate. It’s also the one document I recommend they get from other companies if they want to compare rates and costs with my company.

The GFE consists of three pages. Page 1 consists of:

Date a borrower has to respond by
How long the rate is locked for
The loan amount
The interest rate
The term of the mortgage
Whether the payment can go up
Whether the balance can rise
Whether there is a pre-payment penalty
Whether there is a balloon payment

It also explains what adjusted origination charges are and what your total settlement charges can be. The origination charges can be a negative number, which means that at the rate you selected you may get money back from the lender to pay for some or all of your closing costs. If your number is negative then it usually means you decided to get a higher rate in exchange for money back from the lender. If the rate is low or lower, then you will pay money to obtain that rate.

Page two of the GFE consists of section A and B.

Section A consists of:

The adjusted origination charges: This is what the mortgage company will charge you (or give you back) to obtain your mortgage rate. This is the only section you should closely look at because there are hard numbers, unlike the estimates given in section B.

Section B consists of:

Costs for Appraisal, credit, flood service and tax service fees, etc.

Estimated title charges: These estimates are ordered by the seller’s attorney, but even they will not know the exact amount until a few weeks into the transaction when the title invoice is received. I usually quote a higher number and overestimate because if I under-quote this unknown–and it comes back higher–the law states that they will make me pay the difference. There is a 10% tolerance on this, but we usually over-quote to play it safe.

Owner’s title policy: The current seller pays all of this charge. It is totaled up under the buyer’s charges, but they will get a credit at closing for the exact amount of the owner’s title policy.

Recording Fees: This is to record the mortgage in the county you live in.

Pre-paid items–which consist of money that goes into an escrow account at closing–if you have such an account to pay taxes and insurance: Interest is charged per day from closing until the end of the month.

Transfer Taxes: These are paid if the city or village you buy in has a one-time tax. Not all villages or cities have this transfer tax.

Page three outlines different loan options with lower costs and rates, listing up to four different loan options.

While the GFE is very confusing, it also offers a wealth of additional information that sheds an invaluable light on the mortgage process. I usually go over it with customers to help bring them up to speed in this complicated world.

For questions or comments, please call 773.557.1000 x15 or email ron@ronmortgage.com.

About Ron Ricchio

Renato (Ron) Ricchio is president of Chicagoland Home Mortgage. He grew up in Westchester and attended St. Joseph High School and DePaul University, taking a job as a loan officer in the mortgage industry soon after graduating with a bachelor’s in finance in 1991. He started his own company in 2001, which he operates today. He has been ranked in the top 150 loan originators in 2010 and 2011 by Origination News. Ron is happily married with three beautiful children. A board member of San Francesco Di Paola Society and the founder of Ricchio Family Toy Drive for Lurie’s Children’s Hospital, he enjoys cooking and spending time with family and friends.