What is a good faith estimate?
By Bankrate.com

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):

Fees

• 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

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