Knowing what you have to pay in closing costs will make it easier to settle on a lender. When applying for a mortgage, banks are required to send you a "Good Faith Estimate" of closing costs. While subject to change based on the terms of your specific deal, this document will give you a pretty good idea of what your loan will cost.
The Good Faith Estimate
The good faith estimate, commonly known as a GFE, gives you an idea of what it will cost to get a loan. Lenders are required by law to provide a GFE to applicants, using a specific format, which allows you to compare apples to apples. Keep in mind that the figures are exactly what the title says – an estimate. While the amount can change based on the complexity of your specific loan, it should not fluctuate significantly from the numbers on the GFE. The intention is to prevent any big surprises at the closing table.
The lender is required to send a GFE along with a truth-in-lending and privacy disclosure within three days of receiving a mortgage application. You then have 10 business days to review and sign the document. Although waiting longer won’t make you ineligible for the loan, the bank is only held to the terms of the GFE for 10 days. After that, it is subject to change. To avoid this, review it and ask any questions as soon as you receive the document. If any changes occur, the bank must provide you with a new GFE within three business days of making said change.
Review the Good Faith Estimate carefully. Make sure you understand each charge on the document before you sign it. Once the document is signed and returned to the bank, you are essentially agreeing that these charges are reasonable. If you decide later that a charge seems excessive, it will be difficult to contest it once you've signed. Write down a list of questions and call your loan representative. Make sure you are satisfied before signing and returning the GFE.
Remember that you have only applied at this point. The bank is under no obligation to approve a loan and you are under no obligation to accept one. If the fees seem unreasonable and the bank is unwilling or unable to budge on them, shop around and compare lenders. You don't need to go through the hassle of filling out applications; you can contact different banks and ask about estimated closing costs. If you find one that is significantly less, complete an application. You may lose a couple hundred dollars toward an application fee, but the savings on the back end can more than make up for it.
Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.