Good faith you can understand

For those of you who have never applied for a mortgage, the Good Faith Estimate is the form your lender gives you so that you can estimate your eventual closing fees and escrow account set-ups. This form is important because many new buyers get blind-sided by the money they need to have on hand to close. The Good Faith Estimate was designed to help buyers, but many found them too confusing to make comparison shopping possible.

Inman News pointed out that there is a new Good Faith Estimate on the way. Take a look:

Now, a little about closing costs:

These are not fees, they are prepayments:

At closing, you begin an escrow account for the lender. The lender starts this account at closing with a lump sum. Then, every mortgage payment includes funds to keep that account full enough to pay your tax and insurance bills when they are due. From that escrow fund, lender “pays” your tax and insurance bills.

Depending on where you are in the tax cycle, you may pay as much as six months of taxes into that account at closing.

You also buy a year of homeowner’s insurance starting the day of closing. Then, at the closing, your lender will start collecting for the next year. Usually the lender wants another three months of insurance so that there is enough when the bill comes due next year.

Then there are fees.

These include the cost of the closing attorney (who represents the lender, but is paid for by the buyer), the processors, appraisers, preparation fees for the plot plan, flood certification, the list goes on and on. These fees vary from a few hundred dollars to thousands.

Then there’s title insurance. You must buy the part that covers the borrowed funds you are getting from the lender. You have the option to buy a policy to cover your equity. Prices vary from around $1000 and up.

And...you have the option to buy down your rate by paying points. A point is 1 percent of your loan amount.

New buyers, don’t you want a good estimate before you go house-hunting? Have you seen the current one yet? Does the new one make more sense to you?

Experienced buyers, what were your closing costs like? Do you think the new form will be a help, or just more paper?

Lenders, I know you are reading! What do you think of the new form?