After you have applied for a loan, your broker or lender is required to mail a Good Faith Estimate (GFE) to you within 3 days of receiving your application. The GFE gives you the breakdown of closing costs and prepaid items that you must pay at Close of Escrow. This is just an estimate, but it’s important that you review it and discuss each item with your loan officer.
Closing costs are the one-time fees necessary for the purpose of the loan (such as the appraisal cost, escrow fee, title insurance, notary fee and underwriting fee). Prepaid items are the items you naturally pay for anyway, but in most cases, you have to pay them upfront. The three prepaid items are interest on your mortgage, property taxes and homeowners insurance. The amount that you must prepay is completely dependent on the day in the month and the month in the year that you close, but they can also make up the majority of the funds you must come in with to close.
When you receive your Good Faith Estimate, review it line by line with your broker or lender, asking them to explain anything you do not understand. If you have any questions, do not be shy about asking them, but do know that it’s an estimate. I tend to prepare conservative Good Faith Estimates, especially when it comes to the prepaid items. It’s better for you to be prepared for that “worse-case scenario”.
