When you apply for a mortgage, expect your lender to give you a Good Faith Estimate (GFE) in three days of your mortgage application. This document details all the costs involved in the mortgage, and most experts would advise you to take a close look at it before committing to a loan. It is a helpful document because it gives you a chance to compare different mortgage offers. Remember that the fees listed on this document are approximate calculation and the real charges may be more or less. Here is a list of common items included on your good faith estimate form.
Loan Origination Fee. Loan origination refers to the admission of the loan application process that happens when a borrower presents their financial information to a bank or mortgage lender for processing. This fee is payment for the services given by brokers and lenders in securing your financing.
Loan Discount Points. These are extra, up-front fees, instead of higher interest rates. Normally, the higher the charge, the lower the interest rate, or the other way around. One point is equivalent to one percent of the amount borrowed. Loan discount points may be necessary on the loan you choose like some investor loans and complete financing.
Underwriting Fee. A lender performs the underwriting process to determine if they are willing to lend you money and under what conditions. A mortgage underwriting fee is one of the largest fees on your Good Faith Estimate. It covers the cost of reviewing your loan application and charged by the lender who underwrites your mortgage.
Administrative Fee. This is a fee charged by AHMCC to cover some of the administrative cost related to the professional staff and operation.
Commitment Fee. These are small fees fee paid by a potential borrower to a potential lender at the time that a mortgage or other type of loan is extended to an applicant. The commitment fee serves as a sign that the lender is promising to loan money at a specified date in the future. The exact amount of the commitment fee will depend on the current standards and circumstances that apply. In addition, the lender may or may not expect to pay for the commitment.
Processing Fee. This fee is charged to to basically cover the human effort into the loan.
Truth in Lending Statement. In addition with the Good Faith Estimate, a lender will also hand you a Truth in Lending (TIL) disclosure form. It may also contain information on security interest, late charges, prepayment provisions, and whether the mortgage is acceptable. If you have an adjustable rate loan, it may summarize the limits on the adjustments (annual and lifetime caps) and provide an example of what your next year's payment might be, depending on interest rates.
When your interest rate or any of the fees pump up by closing day, so will your APR and the overall cost of your loan. But do not panic. Take note that the figures in the TIL form are initial estimate by the loan officer and it can be adjusted.
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