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What is a good faith estimate?

Your lender is required by the federal Real Estate Settlement Procedures Act to provide you with a good faith estimate of the fees due at closing within three days of applying for a loan.

These mortgage fees, also called settlement costs, cover every expense associated with your home loan: inspections, title insurance, taxes and other charges.

Because closing costs typically amount to between 3 and 5 percent of the sale price, it is best to wait until you receive the good faith estimate before signing any loan. In fact, smart shoppers will obtain good faith estimates from several lenders, compare their costs, then ask their chosen lender to meet or beat the competition's best offer.

Here's a list of some of the fees you'll find listed on your good faith estimate (for an average price range, see table of closing costs below):

  • Loan application and credit report
  • Title search and title insurance
  • Lender's attorney
  • Property appraisal
  • Inspection
  • Survey
  • Document recording
  • Transfer taxes
  • Buyer's attorney
  • Documentary stamps on new note
  • Points and origination
  • Condominium application
  • Escrow account balances/prepaids
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Title Insurance
Title insurance insures against errors in the title search and guarantees that you and your lender retain financial interest in the property. A title search checks for liens, encumbrances and legal errors, as well as fraud, forgery, missing heirs or divorce proceedings that could affect your rights of ownership, possession or use of the property.

The required title insurance only protects the lender, so if the property has a long and checkered history, you may want to take out an owner's title insurance policy to protect yourself. If the property is relatively new, you may be able to lower the cost of title insurance by asking your insurer for a reissue rate if there have been no claims against the title since the previous title search was done. If you and the seller are both getting title insurance, you may save by using the same insurer, who then only has to research the property once for both of you.

Escrow
At closing you may have to put aside money into special escrow accounts to insure that such things as private mortgage insurance (PMI), property taxes and homeowners insurance are paid on time. Federal law limits the amount of escrow "cushion" to two months of payments. Be sure to ask the lender what escrow payments will be required at closing; some mortgage companies may waive escrow requirements if you pay more points or a higher interest rate.

Ways to Save at Closing

  • Many closing costs are standard and won't vary from lender to lender, for instance appraisals, credit reports, title insurance, government stamps and recording fees. Others, however, may be eliminated simply by opting out of a service, such as overnight delivery of documents. If a fee seems vague or questionable, ask. Some mortgage companies include so-called junk fees that you can eliminate or reduce.
  • Because all mortgage loan payments are due on the first of the month, you can avoid or reduce the prepaid interest due by closing on or near the last day of the month.
  • Remember, you can always negotiate with the seller to have them split or pay outright some of the closing costs, points or fees.
Loan application and credit report
$75 to $300
$75 to $400
$75 to $400
Loan origination fee (1%)
$500
$1,000
$2,000
Points (1 to 3%)
$500 to $1,500
$1,000 to $3,000
$2,000 to $6,000
Title search and insurance fees
450 to $600
$450 to $600
$450 to $600
Lender's attorney
$150 to $400
$150 to $400
$150 to $400
Appraisal
$150 to $400
$150 to $400
$150 to $400
Homeowners insurance
$300 to $600
$500 to $800
$700 to $1,000
PMI
$350 to $675
$750 to $1,500
$900 to $1,750
Inspections
$175 to $300
$175 to $300
$175 to $300
Survey
$125 to $400
$125 to $400
$125 to $400
Recording fees
$40 to $60
$75 to $150
$100 to $200
Transfer taxes
$75 to $1,125
$75 to $1,125
$75 to $1,125
Buyer's attorney
$400 to $700
$1,200 to $1,500
$1,500 to $3,000
Escrow deposit for taxes* (depends on closing date)
$100 to $800
$100 to $2,400
$100 to $3,000
Partial month's interest* (depends on closing date)
$20 to $400
$50 to $1,200
$100 to $2,400
Subtotals
$3,335 to $8,660
$6,125 to $8,850
$9,550 to $22,975
Plus down payment
$5,000
$10,000
$20,000
Totals
$8,335 to $13,660
$16,800 to $18,850
$29,500 to $42,975
* Real estate closing practices vary widely from state to state and county to county. Where you live will determine what you will have to pay. Even if you are not required to prepay into an escrow account for taxes, you may want to set aside this amount to assure that you will be able to pay these bills when they fall due.
-- Posted: March 15, 2004
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Home Buyer's Guide
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