What to Avoid When Choosing a Mortgage Company

When you apply for a mortgage loan, one thing to keep in mind is that your mortgage lender is required by the government to disclose to you a rough calculation of the fees that will cover almost every expense associated with your mortgage loan. This document, called the good faith estimate (GFE), is a legal requirement that all residential mortgage lenders are under obligation to follow. Being aware of the different features included in a GFE will help you deal with your lender more confidently.

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The good faith estimate is a document provided by your mortgage lender within three days of applying for a loan. The GFE provides the borrower with honest estimates of the costs due at closing or settlement, which is typically 30 to 60 days after finalization of the sales contract. The mortgage lender usually includes in this list of closing costs expenses associated with taxes, inspections and title insurance, among numerous other charges. The GFE list will also include down payment balances, prepaid expenses and all other charges the borrower needs to deal with at the closing.

Typical closing costs, which generally amount to 3 percent to 6 percent of the sale price, include the following:

· Loan application fees
· Credit report
· Title search and insurance fees
· Points and origination fees
· Lender’s attorney fees
· Buyer’s attorney
· Survey
· Inspections
· Property appraisal
· Transfer taxes
· Recording fees
· Documentary stamps on new note
· Escrow account balances/prepaids
· Condominium application fee

As a borrower, you should hold your mortgage lender to this approximation with clear flexibility. Since it is merely an estimate, the GFE will likely change. Still, your mortgage lender has a responsibility to inform you at once of modifications as soon as they are known. The general rule is that borrowers should be on the alert for closing costs that are more than 15 percent higher than the estimate provided by the mortgage lender. But this rule is not applicable in situations where you have been initially informed of the higher expenses and you have acknowledged them.

The good faith estimate provided by your reverse mortgage lender is typically divided into four segments that enumerate the estimated amounts for the following aspects:

· Closing costs – one time fees the borrower is designated to pay at closing
· Prepaid expenses – includes expected housing payments such as interest, insurance and taxes; must be prepaid to determine escrow and loan schedule
· Balance of cash for closing – provides a balance sheet for calculation of funds that the borrower will be required to pay, or the amount to be received at closing
· Estimated monthly payment – provides detailed and total projected monthly housing payment, based on the current loan amount, interest rate, term and other housing obligations

Some of the fees are directly controlled by your mortgage lender. These are the ones you should pay the most attention to. Other charges are managed by third parties and don’t differ much from one lender to the other. The fees required for regular items, like credit report, appraisal and title insurance, should be almost equal at every mortgage lender. This also applies to payments made to local governments like recording fees and documentation stamps.

Before you make any commitment, obtain a copy of the good faith estimate from your mortgage lender and do your assignment. It is very essential that you go through the closing cost estimates thoroughly and ask the necessary questions before making the big decision.