by Ralph Lawrence

Created on: March 11, 2009   Last Updated: March 12, 2009

GOOD FAITH ESTIMATE

A Borrower's Primer to Financial Disclosure

Since real estate is typically the largest financial investment a person can make, it is crucial to understand the components of every transaction thoroughly. A good way to educate oneself in the intricacies of the mortgage with its costs and obligations is to become familiar with the Good Faith Estimate, the disclosure that is the life blood of the financing contract.

Each lender or mortgage broker is obligated, by law, to provide the borrower with a comprehensive explanation of the various charges and terms of the mortgage including the interest rate and length. This document must be completed within three days of the initial application, gleaned from information supplied by the borrower. This good faith estimate should be factual and void of any excessive assumptions to make the product more favorable.

Each section on document encompasses costs to complete the transaction such as:

Fees or points paid to the lender or broker.

Charges for property appraisal or application fees.

Escrow contributions for taxes and insurance premiums.

Charges to the title company for title insurance, recording and settlement.

Government charges, if applicable

In addition, other expenses might be included such as city or county tax stamps and items the lender requires such as a property survey or pest inspection certificate. The last section of the document will show the totals of the transaction; prepaid escrows, closing costs, borrower paid points or fees and the estimated cash the borrower will need to complete the financing.

The depth and validity of the good faith estimate is only as pertinent as the accuracy of the information given and the design of the product. It is a falsehood that the borrower must monitor interest rates while the financing package is going through processing. Any reputable broker can lock the current rate with a lending institution. This insures a much more accurate snapshot of the final settlement figures. Most of the figures contributed to the settlement will vary little. What will vary are fees and charges paid to a mortgage broker or to the lending institution. With proper comparisons, one can see differences by comparing good faith estimates supplied by each broker the client queries. Comparison shopping is mandatory. Thousands of dollars are at stake.

Remember, if a broker refuses to provide a good faith estimate with a REAL interest rate, commissions and fees plainly stated and the final document disclosing all costs and expenses related to the loan, choose someone else. Finally, if at the settlement table, the numbers promised are significantly higher, walk away. Do not enter into a contract with different numbers than anticipated. Chances are that the designer of the product is increasing its bottom line at the borrower's expense.

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