One of the most important documents you’ll receive as you draw closer to closing on your new home is called Good Faith Estimate, which is a precursor to the settlement statement that defines the financing of your home closing. This detailed piece of paperwork may seem like it needs its own decoder ring to understand, but you can use this simple guide to understand your Good Faith Estimate.
When you receive your Good Faith Estimate, double-check that the information about your new home is accurate, including the address, purchaser name and date. The date is especially important because estimates of the closing costs like interest and taxes can vary based on this date.
The other important date to review is the deadline to lock in the offered interest rate. Your lender may require you to pay a fee to lock in that interest rate and may also requires you to close the loan by another deadline to guarantee that rate.
Costs and More Costs
While applying for your mortgage, you probably discussed potential monthly costs with your broker. Under the “Summary of Your Loan” area, actual interest and recurring costs are further defined. Verify whether your interest rate can change over time or if you will face any penalty for making early payments. In this area, you’ll also learn if your mortgage lender will require you to pay a portion of your homeowners insurance and property tax every month with your housing payment — called escrow charges — or if you can independently pay these charges.
Your mortgage company may charge you fees for originating a loan on your behalf, including fees to lock in rates or process your paperwork. Some of those fees may be collected up front, while others are included in your closing costs. You may also agree to pay additional charges called “points” to lower your interest rate. Your mortgage company may provide several rates: in general, lower rates cost more to lock in at closing, while higher rates reduce your closing costs.
Settlement charges often include
- Surveyor fees
- Legal recording fees
- Title fees
- Prepaid insurance and taxes
- Appraisal fees
- Credit report fees
- Courier fees
- Attorney fees
An estimate of these fees will be included under your settlement charges. As a buyer, you can request that the seller pay certain fees entirely or that they pay a percentage of the total settlement cost as part of your price negotiation.
On the final page of your Good Faith Estimate, you’ll have room to do more homework. Although you may have talked to only one lender, you can still investigate other interest rates or options. Take the time to go through these numbers. Refinancing can be expensive and time consuming, so locking in the loan with the best available rate and lost costs can save time and money in the long run.
Now that you better understand your Good Faith Estimate, you will be well prepared to review your HUD Settlement Statement at closing and know what fees and costs you will bear.