Good Faith Estimates: In Good Faith?
Taking out a loan for a house can be pretty tricky, especially since some financial institutions employ sneaky albeit legal methods to tack on extra fees. Pursuant to various laws promoting honesty in lending practices, mortgage brokers or lenders in the United States of America are required to provide good faith estimates to their customers. The good faith estimate is also required within 3 business days after applying for the loan, perhaps to prevent unscrupulous editing.
Good faith estimates are very detailed accounts of the various fees related to house loans. There are fees for starting the loan, moving the money about, transferring ownership, and so many more. The idea is to let the consumer know just where his money is going. It is meant to show that the lender is doing everything in good faith, to prove their trustworthiness to the customer. The charges and fees listed in this very detailed document are estimates though, and this is where the consumer can suffer. Many of the charges are fees to be paid to professionals for their services, such as notarizing, legal matters, inspections, and escrow. This is where the charges can differ greatly between estimate and actual costs. It is not impossible that the estimates are in excess of the real costs, though for the most part the final amount to be paid by the consumer is higher than that stated in the good faith estimate.
There are 6 essential sections in a good faith estimate. They are numerically labeled 800, 900, 1000, 1100, 1200, and 1300 respectively. Their descriptions are, in order: loan fees, advance fees, reserves, charges for titling, government charges, and additional charges.
Section 800 has a dozen items. The first is the loan origination fee, the amount charged for starting the loan. The next is the loan discount fee, an amount to be paid to get a lower mortgage rate, which could be worth it. Following are the appraisal fee, credit report, lender's inspection fee, mortgage broker fee, tax related service fee, processing fee, underwriting, and wire transfer fees.
Section 900 covers items to be paid to the lender in advance. They are the prepaid interest, mortgage insurance premium, and hazard insurance premium. If the consumer is undergoing a Veterans Administration program, there is one more, called the VA Funding fee.
Section 1000 covers reserves deposited with lender, such as several months' worth of hazard, mortgage, and flood insurance premiums. School tax and taxes and assessment reserves are also included here. One item, the aggregate accounting adjustment, is credited to the buyer, to avoid over-collection of fees.
Section 1100 is where one can find quotes for fees regarding the land title. Escrow and documentation fees are found here, as well as estimates for notary and legal fees. Title insurance fees can also be found here.
Section 1200 envelops taxes and fees to be paid to the government for updating records of ownership. Lastly, section 1300 includes a pest inspection fee quote, and possibly other items relating to the state of the property to be mortgaged.
