How to Understand Good Faith Estimates
Once you apply for a mortgage, your lender has three days to give you a good-faith estimate of the loan's costs. If you apply to two or three lenders, you can get a clear statement of not only the interest they charge but how much the fees will be, and compare the offers. Even if you're only applying to one lender, it will show how much money you're going to need above the price of the house. A lender can't charge any fees other than a credit check until you get the good-faith estimate.
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Instructions
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Break down the different categories of costs, the Broker Outpost website states. While lenders may not present the information the same way, it can all be divided into lender fees for underwriting the loan, third-party fees for services such as appraising the property and conducting the title search and interest on the mortgage. The interest section will include "points," a percentage of the interest due when you close on the house, instead of over the life of the mortgage.
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Identify which costs could change before you close and which ones are fixed. Typically, the U.S. Department of Housing states, interest rates can change as the market changes; third-party fees for appraisals or a title search may change by up to 10 percent; the lender's fees have no reason to rise, unless it's to reflect changes in the interest rate. If the lender's fees turn out to be more later in the process, ask if there's a reason and push them to stick to the original estimate.
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Compare good-faith estimates from different lenders. If you see charges that are sharply out of line with the rest, or fees for services that aren't on any of the other estimates, ask why, and whether the lender will cut them.
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Check the estimate to see whether the lender requires an escrow account. Many lenders require homeowners to include property tax and homeowners insurance with the mortgage payment, the Orlando Mortgage Masters website states. The lender will put the money in escrow and handle the tax and insurance payments. The good-faith estimate should state whether your lender wants you to use escrow and what sort of initial deposit she'll require.
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Study your "truth in lending" statement, which your lender has to provide along with the good-faith estimate. The truth in lending documents translate the total interest and fees of the mortgage into a single fixed-rate of interest, an annual percentage rate that makes it easier to compare total costs. The truth in lending statement will also tell you if there's a penalty for paying off the mortgage early.
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Tips & Warnings
If you like the interest rate you're offered, talk to your lender about the cost of "locking in" the rate, that is, guaranteeing it will stay the same providing you close within a certain period.
If you negotiate for lower fees, your lender may want to raise the interest rate to compensate.
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