What does a mortgage really cost?
Okay, you’ve found a company you like, and their rate seems competitive. Now you have to find out what the closing costs are. Is the company in line with the competition or do they charge hidden “junk” fees that will make their deal more expensive?
So you ask for a Good Faith Estimate, and you sit down to compare it with two GFEs from other lenders. What do you look for?
The fees you want to compare are bank fees. There are a lot of fees on a GFE besides the bank fees. There are state tax and/or recording fees; title fees (insurance, exam, search); and prepaid items (homeowner’s insurance, property taxes, interim interest).
Most of these fees do not vary from lender to lender. State tax and recording fees are set by the state or county; title insurance is also regulated. Prepaids are a function of when you close and when taxes and insurance are due, same with interim interest — it’s simply the days interest on your loan between the closing date and the end of the month.
The closing costs that do vary are the bank fees. So let’s say you have three Good Faith estimates in front of you. Where are the bank fees?
INSIDER’S TIP: Bank fees are in Box 1-3
Box 1, Our Origination Charge, is where a bank lists their charge for originating the loan. This figure could include things like: underwriting fees, application or processing fees, commitment fees.
INSIDER’S TIP: if you want a breakdown of what’s included in the origination charge, ask for a FEES WORKSHEET. But be aware — a fee worksheet is not a substitute for a Good Faith Estimate.
Box 2, Your Credit or charge (points) for the specific interest rate chosen is where a bank would list points (if they’re charging you points) or a credit toward closing costs.
Box 3, Your Adjusted Origination Charges, is simply the total of Box 1 and Box 2.
So if you are comparing three GFEs and pick the one with the lowest number in Box 3, you go with that bank, right?
Wrong. Because we haven’t even talked about rate. Here are the rates you’ve been quoted:
Bank 1: 4.50% with zero points; $1,250 adjusted origination fee
Bank 2: 4.25% with 1 point; $2,250 adjusted origination fee
Bank 3: 4.375% with .375 point credit toward closing costs; $875 adjusted origination fee
Which one is the cheapest? Hard to tell, isn’t it?
INSIDER’S TIP: Request that ALL your Good Faith Estimates are done using the same rate.
Because once you hold the rate constant, then you can use Box 3 to choose the cheapest deal.
One more thing that affects your rate and what it costs is the lock in period. For more information about rate locks, see Should I Lock in My Rate?
Rates are quoted based on whether they are a 15 day lock, 30 day lock, 60 day lock, etc. Different lock periods have different rates and points.
INSIDER’S TIP: When you request Good Faith Estimates, make sure they’re all done at the same rate AND the same lock in period.
For a complete list of closing costs on your loan, call Amerifund at (888) 650-7316 or fill out this form and someone will contact you.
(c) Copyright Eris Saari 2019