by Melanie Wood

Created on: August 20, 2008   Last Updated: August 27, 2008

Borrowing is all about renting money; rent being the interest paid on the note each month. In real estate financing there are many additional charges to be considered, and these are covered in the Good Faith Estimate.

The GFE as required by the Real Estate Settlement Procedures Act is issued by the mortgage broker, and by the lender. It should clearly reflect prospective costs of this loan. With this tool borrower is able to guide his loan to closing. The GFE acts as a "shopping card", to compare and contrast loans offered by various lenders. It is also helpful in negotiating a better loan for borrower.

Interest rates on loans vary widely, and can to change daily if tied to an index. They are not referred to in the Good Faith Estimate. A Monthly Mortgage Payment Table can be found on line. With this, borrower can gauge how much monthly payments might cost.

The GFE must show fees collected for or charged by all parties to the loan, including but not limited to broker, lender, insurance, appraiser, inspectors, title, escrow, notary and recording agents. Many of the fees shown are based on the sales price or the loan amount; some will be expressed in a percentage "point" and others as flat fees. All costs must have an (estimated) dollar figure shown in the corresponding column. On reviewing this document, borrower should check for duplications in charges, check the totals, and feel free to ask questions. Occasional errors are made and this is the time to catch them.

After the loan closes, the final HUD-1 disclosure is prepared. These figures may be noticeably different from the initial Good Faith Estimate. Loan processing often takes a month or more, and as the transaction draws toward closing (settlement) date, the figures change, become more solid. For instance, hazard and flood insurances are normally ordered at the last minute so as not to incur unnecessary charges to borrower; pro-rations of taxes will now use a specific target date for the transfer of title; and your first payment date may adjust depending on the day of the month the loan closes, requiring more or less interest from borrower. The final HUD-1 is in effect a transformed GFE, and tells the story of the loan.

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