Although most companies are very competitive with interest rates, Closing Costs can vary greatly between companies. Unfortunately, many consumers are not aware of the importance of understanding the good faith estimate and simply don't know what all the charges and fees are for. Many people go to closing and sign their closing papers without full knowledge of all of their closing costs.

Listed below is quick breakdown of closing costs to help you understand some of the possible charges or fees you may find on your good faith estimate and how they affect your bottom line. Here is blank Good Faith Estimate for use when comparing mortgage companies.

Blank GFE

There are many mortgage ads on television, the radio and in print promising reduced closings costs, no closing costs, very low rates and much more. The bottom line is nobody will do your loan for nothing. Like any other business, mortgage companies need to make a profit too. Whatever the marketing technique, you will pay for your loan.

Some of the marketing techniques listed above are truthful but there are consequences. For example:

Little or no closing costs are usually accompanied by a higher rate to offset the closing costs or increased fees to the broker: There are always closing costs. If you don't pay for them, the broker or lender will and increase the rate or fees to cover them.

Lower interest rates or a buy down is usually accompanied by points. A point is one percent of the loan amount. One percent on a $250,000 loan is $2,500 dollars. There are companies that advertise the low rates to get you in the door but the low rate is based on paying points. There is a time for points and a time not to pay points. Find out if you should pay points.

THE GOOD FAITH ESTIMATE:

In an effort to keep the explanation simple, the Good Faith Estimate or GFE is broken down into 3 parts: Closing Costs, Pre-Paids and Funds needed to close. Interest Rate aside, the sum of the closing costs and prepaids minus your down payment and any credits is what it costs you to close your loan.

CLOSING COSTS:

There are many items that make up closing costs, most of them are fees. Common fees are Origination Fees (points), Appraisal Fee, Credit Report, Broker fee, Tax Service fee, Rate Lock fee, Processing fee, and Underwriting fee. This is the area that can cause different mortgage companies to vary greatly on closing costs.

You need to be careful when getting quoted rates. By increasing fees, companies can increase profit and quote a lower rate. Customers that are not familiar with the GFE may pay dearly for the rate they receive! Be careful, there are always closing costs. Even if you pick a program that states no closing costs, you simply get a higher rate. If you don't pay them at closing or add them to your loan amount, you will pay for them somewhere, either in the rate or in fees.

PRE-PAIDS:

Pre-Paids are items required by the lender to be paid in advance. Common pre-paid items are: interest, mortgage insurance, flood insurance & hazard insurance. These items, although they aren't quoted exactly, don't vary much.

ESTIMATED FUNDS NEEDED TO CLOSE:

As an example: On a purchase, funds needed to close is simply your purchase price + closing costs + prepaid items - loan amount - any deposits and credits.

IMPORTANT POINTS AND INFORMATION TO CONSIDER:

The average life of a loan is about 5 years. Here is an Example:

The difference on a $250,000 loan amount between an interest rate of 5.5 and 5.75 is $39.46/month or $2,367.60 over 5 years. 2 points at closing on the same loan amount would cost you $5,000. It would take you 10.5 years to pay off the 2 points! If you don't plan on being there that long or plan on refinancing before then, don't pay points!

You need to feel comfortable with the loan process, get a full explanation of the GFE, Interest Rates and the different programs available to you. There are many reputable mortgage companies out there. There are also some that aren't so customer oriented. Do your homework and find a company that will take the time to explain everything to you.

DO NOT SIGN AN APPLICATION OR ENTER INTO AN AGREEMENT WITHOUT UNDERSTANDING THE GFE AND GETTING A COMPLETED COPY! - KNOW WHAT YOUR COSTS WILL BE!

David Bertolami Jr is the Owner of Belle Mortgage LLC located in Southern New Hampshire. Belle Mortgage is a family owned company servicing all of New Hampshire, Massachusetts, Maine and Connecticut. For more mortgage information, you can visit the Belle Mortgage website at Belle Mortgage LLC