This step is to get a good faith estimate. Lenders and brokers are required by law to provide customers with a good faith estimate. And most do. But you want to make sure that you ask for it so that you let your lender or broker know that you will hold them accountable to the document.

Your good faith estimate shows a break down of all of your closing fees and impounds. Closing fees are one-time, non-recurring costs associated with closing your loan. These can include title fees, underwriting fees that go to the lender, origination fees that go to your lender or broker, and appraisal fees among others. Impounds are those recurring costs associated with home ownership. In most cases you will allow your lender to impound or pre-collect fees every month that they will put into an escrow account. They will also impound fees at the time of closing. The lender will use those fees to pay your homeowner’s insurance and your property taxes. Since the lender is collecting the fees and paying them directly, they can be assured that your taxes are paid instead of trusting a borrower to pay them. At the end of the year, they will assess your escrow account and either send you a refund check for fees they didn’t end up using, or they will send you a bill for the fees they paid that your account didn’t cover. If you choose to have your lender impound, then both recurring and non-recurring costs will be line-itemed on a Good Faith Estimate (GFE).

What is particularly useful about a GFE is that the federal government has created the form so that it is uniform across lenders. So a borrower looking at a GFE in Massachusetts will have the same form as a borrower looking at a GFE in California. Of course, the numbers may be different, but each of the various types of costs will be listed in the same place. This means that you can take your original GFE with you while you are shopping your loan. Any broker you go to will try very hard to beat a GFE that a potential customer brings in. And if they are unable or unwilling to beat the fees charged on your original GFE, then they can perhaps offer you a shorter pre-payment penalty or a similar incentive.

But when you are shopping your loan, you want to make sure that you are comparing apples to apples. That means you have to make sure that each broker or lender is quoting you the costs for the same loan. For example, if one broker charges $5,000 flat for a 30 year fixed loan and a second broker charges you only $4,000 you want to make sure they too are offering a 30 year fixed and not a 2 year adjustable rate mortgage, for example. You will also want to make sure that each are quoting you their fees for the same loan amount. This is particularly important because fees are often determined as a percentage of your loan amount.

A GFE is also useful because it gives you a fee quote that you can take with you to closing. When you sign your loan documents, you will sign a HUD1. This is your final delineation of closing costs. A title or escrow officer will prepare this document and have you sign it. What is nice is that this final document has the exact same line item numbers as your original Good Faith Estimate. So your appraisal fee will be shown on the same line number on both documents. This makes it easy to compare your final costs with your original quote.

Keep in mind though, your original GFE is an estimate. So if you close at the end of the month instead of the beginning of the month, your fees can be different. Usually you will notice the difference in your recurring closing costs like insurance and taxes and in your pre-paid interest.

In order to avoid surprises, it is a good idea to ask for another GFE right before you close. Typically, you should request it three business days before you sign. This allows the broker time to prepare the document, have an accurate knowledge of what the final costs will be, and also time for you to resolve any concerns that might arise after you review this GFE. A good broker should be able to create a GFE that is within pennies of your actual final costs. Most importantly, don’t be afraid to ask questions. You can ask your loan officer, his or her manager, and whomever guides you through the signing process. When you make an effort to really understand the process, you’ll always pay lower closing costs.

The next major set of fees will come from your lender. Standard lender fees include an underwriting fee, a document prep fee, a tax service fee, a flood certification fee, a wire fee, and sometimes discount points. Discount points are only paid when you decide to “buy down” your interest rate. This means that you are paying a premium to the lender in exchange for a lower interest rate. Underwriting fees and document prep fees off set the lenders costs for underwriting your loan application and preparing all of your loan documents when the file has been completely approved. The tax service fee and flood certification fee are simply fees that pay for the lender to get official tax information and official information as to whether your property is in a flood zone and therefore requires flood insurance.

The final set of fees comes from title and escrow. The main title and escrow fees you will see include title insurance, an escrow fee, endorsement fees, a reconveyance fee, an email fee, and overnight delivery or courier fees. Title insurance will almost always be your most expensive title fee and this fee varies based on the size of your loan. Larger loans require more insurance and therefore have a higher title insurance fee. Your escrow fee can also vary based on your loan size. That is the case when you are purchasing your home. However, when you refinance you will typically pay a flat fee for escrow, and this is much lower than the escrow fee you will pay for a purchase. The newest fee added on by title companies is an email fee. Over the last few years almost all lenders have switched from overnighting their loan documents to the title company and instead now email the documents to the title company. So now title companies have to print out multiple sets of loan documents for each borrower and so title companies have begun to charge a very small amount for this service.

In addition to the above mentioned fees, there are a few more you may come across. The first is a recording fee. This fee goes to your county or municipality so that they can officially record the transfer of the property. Another fee you may come across is a pest inspection fee. This will only affect purchases and not refinances. Lawyer fees may also come into play depending on what state you live in.

When you purchase a home, then you will need to pay your closing costs out of pocket when you close escrow and sign your loan documents. However, when you refinance, typically the fees are not paid by you out of pocket. Instead, they come out of your loan proceeds. At the time you sign, you will receive what is called a HUD-1 Settlement statement. This statement line items each fee and shows how much the fee is and to whom the fee is paid. Overall, the most important thing to remember when it comes to closing costs is to obtain a Good Faith Estimate when you first start the application process. And then review your closing costs with your broker before you go into sign your loan documents. If these fees have changed, then your broker should provide you with a new Good Faith Estimate. Finally, remember to compare your Good Faith Estimate to your final Settlement Statement. And never be afraid to ask for clarification of a cost you don’t understand. It’s your money.