The Real Estate Settlement Procedures Act, known as RESPA, requires mortgage lenders and brokers to provide a good faith estimate to customers outlining a list of fees and costs associated with obtaining a mortgage within three business days of applying for a loan. RESPA outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help home buyers be better shoppers in the home loan buying process, and is enforced by HUD.
A move has been made to make the Good Faith Estimate a standard form which makes it easier for buyers to compare different brokers’ and lenders’ quotes and charges associated with closing the transaction.
The closing or settlement costs are the mortgage fees associated with the purchase and closing on a property and should include every expense associated with a mortgage loan, including title insurance, taxes, inspections, and other charges required to close the loan.
A good Good Faith Estimate should be fully itemized and include fees which fall into six basic categories:
• Loan fees, including loan origination fees which should not exceed 2%, appraisal, credit report, etc.
• Fees to be paid in advance, such as interest on the loan
• Reserves the lender requires to be escrowed, such as 1 – 3 months homeowner’s insurance and 1 – 3 months pro-rated real property tax if those items are escrowed with the monthly mortgage
• Title charges, such as attorney fees and title insurance
• Government charges, such as recordation fees
• Additional charges, such as survey, home inspection, wood destroying organism inspection, and home warranty are usually provided by your REALTOR® and may not be reflected on the Good Faith Estimate originated by your lender representative.
The Good Faith Estimate also includes information that is not an estimate, but states facts such as the type of loan applied for, such as VA, FHA or Conventional; proposed mortgage payment including escrowed amounts, if any; total loan amount; down payment; seller paid closing costs or agent rebates; and interest rate.
The Good Faith Estimate is only an estimate. Though it’s not uncommon for buyers to wait in the bank parking lot before closing for final figures from the attorney’s office, the final closing costs can easily be calculated by an astute real estate broker to assure your peace of mind in the final days prior to closing.
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