Good Faith Estimate: Know What You Will Be Paying

At one time buyers of residential or business real estate were at the mercy of unscrupulous companies in the industry who used unfair tactics to control prices, deceive borrowers, and increase their profits due to the inflated costs of real estate transactions.  Kickbacks and bait and switch tactics were the order of the day.  The result was the Real Estate Settlement Procedures Act (RESPA) of 1974.  One of the key elements of RESPA is the requirement for a good faith estimate.  This good faith estimate is required within three business days of a loan application, and it must include a disclosure of all:

• Loan fees
• Reserves
• Advance fees
• Title Charges
• Government taxes and fees
• Additional charges

These fees are also called closing costs or settlement costs, and the good faith estimate includes every fee, which is part of a home loan, even including those items which may be optional with some lenders, like home inspections.  A good faith estimate is prepared and presented on a standard HUD-1 form.  However, the borrower must realize that the good faith estimate is just what it claims to be, an estimate, not a guarantee.

Information Included   

Not only does the good faith estimate include the charges that accompany a loan from that institution, it also provides clear answers to the questions most borrowers have.  Some of the questions that should be addressed in a good faith estimate are:

• What are the terms of the loan?
• What kind of loan will it be, fixed or adjustable rate?
• Are there penalties for making additional or early payments, or for paying off the loan early and refinancing with another lender?
• Does the loan include a final balloon payment?
• What does the lender estimate the final closing costs to be?

Rights of a Mortgagor   

Those purchasing a home and seeking a mortgage loan have a number of rights that are granted under U.S. law.  Those rights include:

• The right to shop for the best loan and receive full disclosure of the costs that will be charged by various lenders and brokers
• The right to know exactly what each broker or lender will do for you in advance and in writing before deciding on which lender to use
• The right to know how much a mortgage broker would be paid by you and the lender to facilitate a loan
• The right to receive a full explanation of all the charges and terms that are unclear or confusing
• The right to receive fair treatment without discrimination based on race, color, religion, national origin, sex, marital status, age, or the source of your income.
• The right to know why any loan application is rejected
• The right to receive information on national standards of loan costs

Rights of Mortgage Holder

Those who finance mortgages have a number of rights in today’s real estate market as well.  They have the right to be paid a reasonable fee for their services, to charge a reasonable interest rate for their loans, and to foreclose on those homeowners who fall behind on their payments.

Today’s economy is in serious trouble, and the homes of many people are in jeopardy.  That is why it is important to have assistance before you decide to purchase a home and apply for a mortgage.  A real estate attorney can analyze your financial situation and advise you about how much you should spend and what kind of mortgage loan will work for you so that you won’t become another statistic in today’s housing crisis.