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Understanding the Good Faith Estimate

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By : Roby Hicks    99 or more times read
What is a good faith estimate? This is an estimate required to be given to a loan applicant at least three days after his application. The Real Estate Settlement Procedures Act (RESPA) is obliging all lenders and mortgage brokers to provide this. The estimate will include the list of charges associated with the loan. The mortgage fees will normally cover the charges linked with processing the loan. These are the title insurance, taxes, charges for the home loans and more.

Many are asking why there is a need for the said estimate. It is important because through this, the borrowers will be able to compare the rates, quotes and other charges of the lenders. You have to keep in mind though that these are just estimates. The actual expenses you will incur are usually different.

If you get a good faith estimate, study the items there very well. You can negotiate several items there for a smaller value. Thus, it will help you save more. One of the items in the estimate is the payables associated with the loan. Most of the charges that are found in the item are negotiable. If you know what they are, you have more chances of negotiating for a lower value. Some of these charges are the origination fee, processing fee, application fee and other charges.

The title charges are also part of the good faith estimate. Since this is often a fix rate, you will not be able to negotiate the fees. However, you can look for your own lawyer instead of a title company. Just be certain that the lawyer is accredited by the lender. There is a huge difference between the lawyer’s fee and the charges of the title company. This makes it essential that you make your research before agreeing to these charges.

In the estimate, an item is designated for the charges on the recording and the transferring of ownership. This is a fix charge. Since this is the case, you will not be able to negotiate its fees. This is why it is essential that you know the different items in the charges so that you will know where to focus.

You should also be prepared with the charges that the lender will want you to pay in advance. These charges will be included in the estimate. One of the items is the interest. The interest will cover the period from the date of the closing until the end of the month of the closing. You will also need to settle insurance premium for FHA loans, hazard insurance, tax and assessment as well as the VA funding fee.

The estimate will also include the reserves for the lenders. These are the same among all the lenders depending on what the state law stipulates. This is needed for determining the number of months and reserve levels necessary for an escrow account.

As mentioned earlier, the good faith estimate is a way to compare quotes from the different lenders. Because of this, it is essential that you ask for an estimate from all of your prospective lenders. This way, you will be able to find the best rate and deal for your loan.
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