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Good Faith Estimates - Learn how to Identify the Right Mortgage Plan for you

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By : Liane Canonigo    99 or more times read
When you speak of good faith estimate, it is one of the most effective tools in comparing loans. This amount gives approximation of the total cost presented by any financial transaction and thus comprises a big part for evaluating a mortgage if it has favorable terms or not. However, it is important to know how to use this tool because it is only an estimate of a particular amount and thus you have to be cautious about it.

There is a noticeable difference between good faith estimates and annual percentage rate. The good faith estimates deal with fees and extra charges that are completely different and not related to the mortgage’s annual percentage rate. Therefore, it is the most effective instrument to compare your loan. But bear in mind that the annual percentage rate can also be another instrument which can help you in comparing later on. The good faith estimate consists of charges that may be or may not be included in its coverage.

Therefore, you can safely declare that the annual percentage rate will show you an objective tool for comparing the figures related with borrowing the money while good faith estimates will present you a subjective tool that will provide a more unexpected range of possible cases of the loan payment. Hence, it is imperative to determine what good faith estimate covers so you can easily compare all the figures you see.

For beginners, it consists of processing fees like origination fees, appraisal fees, title search, credit report check and other related factors. It can also cover homeowner insurance if due to the loan condition you will be asked to take one. It may also include provisions for property taxes and hazard insurance and other policies which will depend on the lender. These provisions are imposed by the lender which then handles all the process on your behalf.

Lastly, it will also cover all lawsuits and related fees like title fees, government recording, transfer charges and so on. These costs are required and are related to all the legal documentation and must be secured that your property will be legally recorded under your name on public documents. There are legal offices that deal with all the paperwork and will inform the lender about it which you will also have to pay as you go along.

As what was mentioned earlier, good faith estimate is simply an approximation of the costs of the loan. This means that there are variables that can change every now and then, it can either decrease or increase. One of these variables which probably the most vital is the interest rate of the loan. These unpredictable rates can increase or decrease depending on the condition of the market. However, even if you choose a loan under a fixed rate plan, it will not be locked unless you fix it. Thus, while you are planning whether to go for the agreement or not, the rate will probably change and expenses are volatile. Hence, if you have already decided, it is wise to lock the rate.
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