When the potential home buyer has narrowed the field down for the best mortgage lending option, the next strategy is to acquire a Good-Faith Estimate (GFE) from one or two prospective lenders. Any lender is required by federal law to provide a breakdown of the closing or settlement fees associated with the loan offer. While this is only an estimate, it does allow a detailed review of important information regarding fees controlled by the lender, by the third parties involved, and those that can be negotiated by the buyer for better pricing options. The GFE must be provided to the applicant within three days of applying for a mortgage loan. Likewise, since the closing costs can range from 3% to 5% of the purchase price, it is wise to have the GFE well in hand before signing the loan commitment.
Lender Category Fees
The lender’s fees, also called ‘loan origination’ costs, cover any discounts, credit searches, assumption, broker fees, tax-related services, application, commitment, rate locks, wire transfers, as well as all processing and underwriting costs. Some of these can be negotiated for pricing modification, and if any charges appear vague or questionable, it is best to request verification.
Third-Party Category Fees
These expenses cover services the lender has set up via affiliate arrangement, and are not supposed to be value-added in terms of mark-up. These include settlement costs, closing or service charges, property appraisals, surveys, title insurance, searches and examination fees, city or county doc stamps, and all document preparation and recording via notaries and attorneys. They may also include interest pre-payment, mortgage or hazard insurance, and property taxes as well. In general, there is not a significant amount negotiating flexibility with these costs, but by examining each one through a competing proposal, a borrower can request a better detailed explanation.
The GFE is the most financially beneficial tool to utilize when a borrower is reviewing the best and most affordable mortgage options, and allows the best opportunity for cost reductions and savings options during the closing process before putting their signature on the dotted line.