Mortgages Part 7B: The Good Faith Estimate and Truth in Lending

Within three business days of completing your loan application, your loan officer is required by the Federal Real Estate Settlement Procedures Act (RESPA) to mail you a Good Faith Estimate and the Truth in Lending Disclosure Statement.

The Good Faith Estimate provides you with an estimate of your loan terms and closing costs (or settlement costs), which include almost every expense associated with your home loan. The good faith estimate is very useful for you to compare fees between different lenders.

Important Information on your Good Faith Estimate

Summary of Your Loan

This section lists the basic terms of your loan: the loan amount, term and interest rate, and your monthly payment amount.

Summary of Your Settlement Charges: Adjusted Origination Charges

This section includes all of the broker and lender fees. It includes your lender's 1. origination points and 2. discount points. These fees are controlled by the lender and may be negotiable.

Summary of Your Settlement Charges: Other Settlement Services

This section lists the common fees that are usually required, including:

• Appraisal Fee - Your lender requires you to pay for a professional appraiser to assess the value of your home, to ensure the house is worth more than the mortgage amount
• Credit Report Fee
• Title Services and Title Insurance Fees - Required by the mortgage company, this is to protect both your interest and the lender's. The title insurance protects you from buying a house where there are liens and defects against it (for example, if the previous owner owes taxes, or have liens against the house that was never paid).
• Attorney Fees
• Government Recording Charges - What the government charges to record your deed and register the property to your name
• Homeowners Insurance - You must purchase insurance for the property prior to settlement.
• Initial Deposit for your Escrow Account - A prepayment of several months' home insurance premium and property taxes.
• Transfer Tax - Your local county and state usually charges a transfer tax to be paid, based on the sales price.

It's just an estimate

Remember that the good faith estimate is just an estimate, and the actual charges may differ. Contact your lender if you have any questions about your origination charges, or if there seem to include some 'junk fees'. You will receive a HUD-1 at settlement, which lists your actual costs. You can compare the charges on the HUD-1 and your good faith estimate to make sure they have not dramatically changed.

The Truth In Lending Disclosure Statement

Along with the Good Faith Estimate, you will also receive a Truth-in-Lending Disclosure Statement. It includes:

• The amount you are financing
• Your APR (The APR is not your interest rate. APR was explained here)
• The finance charge - how much you will pay in interest and in total if you make all your payments for the life of the loan
• The payment schedule

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