What the hell is it?
It will list all your closing costs. Remember this is just an estimate. Sometimes loan officers will give you a low estimate just to get the loan and then when you get to closing it has somehow gone up. Ask how close the estimate will be? Sometimes there are additional charges that the Loan Officer can not foresee. Don't go yelling at the loan officer if something comes up and he has a good reason for it. Just tell him you want to be notified if something has to be added to the GFE. This alone should keep him from calling and adding costs.
OK, But what the hell is it?
Here is list everything on a GFE and what charges can be negotiable, almost all. The GFE is sometimes broken down in five sections
Items payable in connection with the loan Prepaid Items Reserves deposited with Lender Title Charges Government Recording and transfer charges Additional Charges
Items Payable in connection with the loan
Loan Origination-
-This is the fee the mortgage company charges for doing the loan. This fee is the most negotiable. It can be anywhere from 0% of the loan amount to as high as 7%. It's usually around 1%. You should always say you want no origination points or Discount points.
Loan Discount
This is the fee to buy down the rate. The only time you should pay a discount point is if the buyer is using this to buy the rate. For FHA loans you might also pay up to 2% discount points. The mortgage company uses these fees to pay processing and underwriting fees that FHA says the borrower cannot pay. This is another secret. We just charge discount points to pay those fees. So you are still paying them. Totally legal.
Appraisal Fee
This is usually around $275-$350 for non FHA loans. For FHA appraisals $350-$500. It should definitely be in that range.
Credit Report
The usual charge is around $75-$125. This only costs the mortgage company less than $20. You are paying for all the credit reports they have to pull and the never close the loan. Sometimes they have to pull a full factual so the cost might be justified. Ask them.
Mortgage Broker Fee
This is another sneaky fee a broker might throw in. He might give you some reason why you are being charged. If you call three mortgage companies you will get three definitions.
Processing fee
This is the fee for processing your loan. It can range from 0 to $600. It is another junk fee. Some mortgage companies outsource their processing so they feel the need to charge this. But a lot of companies don't ever charge a processing fee.
Underwriting Fee
If you are dealing with a broker and not a lender you will almost always be charged between $195-$695. Because a broker does not actually loan you the money they just submit the loan to a lender for approval. The lender then charges the broker the Underwriting fee which he passes along to you. If you are dealing directly with a lender this fee can almost always be waived. But not if you don't ask.
Document Preparation Fee
This another fee that the lender can charge. Sometimes they charge you a $250 Doc Prep Fee and a $250 Underwriting Fee, instead of a $500 Underwriting Fee. So it doesn't seem to be as much of a rip-off. This might be in the title charges. They figure if the split it up more it won't seem so bad.
Title Charges
Closing Fee or Attorney fees
This is what the closing agent charges for preparing your final documents then sitting down for an hour and signing all the papers. It can be as low as $200 or as much as $700. Depends on what part of the country and what state. Some state require all mortgage loans to close at an attorney.
Isn't that nice of the state watching out for the consumer. Not Quite---The lawyer is representing the lender, you're just paying the bill, Ouch. I have seen Closing fees vary by $300 in the same city. The loan officer usually picks the closing agent but you can shop around and pick one they usually don't mind. It can sometimes lead to some screwups because they are not use to dealing with a different company. But it really isn't that big of deal so they shouldn't care if you pick. Technically the borrower is not suppose to pick the closing agent. This is suppose to reduce loan fraud. Don't worry most loan officers don't know this.
Title Insurance
Their are two types of title insurance; Lender's title insurance and owner's title insurance. Lender's title insurance protects the lender if their is any title problem; Loan fraud, Property dispute, Indian burial ground to name a few examples. The insurance company pays the lender back the loan amount. This is usually around .3% of the loan amount. This fee is usually about double what the insurance costs the closing agent. That's right 100% markup but no one ever complains.
Owner's title insurance is the same thing as lender's insurance is just pays you back any equity you have in the house if their are title problems. This is not required and can only be bought when you purchase the home. It does not have to be purchased right then, you can usually wait a couple weeks. If you should or shouldn't buy title insurance is a tricky question. I would differently ask around and everyone will say buy it. I just hate when everyone tells you should buy something. There are a lot of times when the chances of the house having a bad title are zero. Ask around.
Government Recording and Transfer Charges
Recording Fees
This is another fee the closing agent charges for recording the new owner at the courthouse. This is from $25-$65.
City/County/Stamps
This is a fixed fee. The government doesn't like to negotiate. Varies for every county
State Tax/Stamps
This is the other fixed fee. This is going to be the same no matter what company you choose. Varies for every state.
Reserves deposited with the lender
Interest for remaining days in the month
If you close on the 15th of the month you have to pay the interest per day for the remaining days of the month. If you close on June 15th you will pay 16 days of interest. The closing agent will figure this but I will tell you how. Let's say you have a loan amount of $100,000 and an interest rate of 8% and there are 16 days remaining in the month. You are going to figure interest per day. Take the interest rate divide by 365 days in the year and times this by $100,000 then times this by the days remaining in the month.
This is the calculation .08 divided by 365 * 100,000 = $23.29 interest per day * 16 days left = $372.60
So if you are buying a home and you want to bring as little money to closing as possible close toward the end of the month. I would avoid the last days of the months, it gets very busy and you might be at the closing office for several hours.
Hazard Insurance Premium
This fee is for one year of Homeowner's Insurance. You pick the insurance company and you can either pay the insurance agent and he will give you a paid receipt or you can include it in the closing costs.
Mortgage Insurance Premium
This is your upfront mortgage insurance for FHA Loans. It's just called upfront but you include it in the closing cost. It is 2.25% of the loan amount a fairly big chunk and is not negotiable. But you can reduce it to 1.75% by reading a little booklet and answering a few questions on the phone. Your loan officer sets it all up but you better ask him. Its just extra work so a lot of times they don't mention it.
Hazard Insurance Reserves, Tax Reserves and Mortgage Insurance Reserves
This is an account that is set up at closing to pay your taxes and insurance and mortgage insurance for you. So if your taxes are $1200 per year you will have to deposit $100 a month this will be included in your mortgage payment. The same goes for your homeowner's insurance and mortgage insurance.
Example:
Taxes for the year $1200 divide by 12 months = $100
Home owners insurance $300 divide by 12 = $25
Mortgage insurance $600 divide by 12 = $50
That totals $175 per month added to your payment every month. Then when your taxes and insurance are due your mortgage companies pays them.
You can call the county assessor to find out how much the taxes will be. You might also have city taxes. You can call your county courthouse they should be able to direct you to the right person. Call City Hall to find out if you have city taxes. This will all be done for you by the closing agent but you might want to know how much the taxes will be before you buy. Your loan officer and if you have a real estate agent are just estimating what your taxes will be. They can be very wrong and you might be very surprised.
Additional Charges
These are charges that might be charged especially if you are buying a home.
Pest Inspection
This is a termite letter. Someone comes out and checks for termites this should be around $50. Your loan officer usually just picks someone he doesn't care about cost.
Survey
This is sometimes required if the appraiser could not find your exact property lines in records or if he thinks there might be some property dispute. This is not an automatic charge so ask why this has to be done. It's usually around $250.
Courier Fees
This one is a classic. You might be charged a courier fee by your loan officer and the closing agent. It might cost them a total of $20 and they will charge you over $100. This fee sometimes pops up at closing and is not on the GFE. Ask them why they might reduce it or take it off.
Other Fees
You might see some other strange fees if you don't know what they are ask. The more questions you ask the least likely you are to get taken advantage of.