Related topics
Even setting aside 3 to 6 percent of the loan amount for closing costs you might worry whether you'll have enough cash at the closing. Fear not. When you apply for a loan, federal law requires that, within three days, your lender give you a written estimate of those costs. To do this, the lender uses a form called the Good Faith Estimate (GFE), developed by the Department of Housing and Urban Development (HUD) for just this purpose.This recently revised, three-page document helps you compare loans from the same or different lenders and understand the total closing costs you'll pay.
The Good Faith Estimate isn't just the lender's best guess at your closing costs - it's a realistic estimate that comes surprisingly close to the true figures. That's because federal regulations dictate the degree to which closing costs can increase. For example, the following costs cannot be higher at the closing than they are on your GFE:
- The loan origination fee
- The points required for the given interest rate (after you lock in your interest rate)
- Transfer taxes
The following third-party charges may increase before closing, but not by more than 10 percent:
- Required services, such as an appraisal (your bank selects the provider)
- The title search
- Title insurance
- Government recording fees
The 10 percent cap on third-party charges applies only to third parties that the lender specifically requires or recommends. For some services, such as an appraiser or home inspector, the lender may let you shop around - but if you choose a provider that's not on the lender's recommended list, the amount you pay for the service could exceed the amount shown on the Good Faith Estimate by more than 10 percent.
Other charges in the GFE may change by more than 10 percent:
- Homeowner's insurance, which is between you and your insurance company
- The amount of the initial deposit into your escrow account (that's because the date of the closing may change between the time the lender creates the GFE and the day you actually close)
- Daily interest charges (ditto)
The GFE also lets you compare the trade-offs you make when you choose lower closing costs now (which result in paying more over the life of the loan) over a lower interest rate (which results in higher closing costs but a lower overall cost).
To compare loans, use the worksheet on page 3 of the GFE, called the "shopping chart." Fill in the figures from different lenders and compare them. You'll get a clear picture of the closing costs with a quick, accurate comparison.
