Friday, March 4, 2011

Good Faith Estimate Vs HUD-1

Good Faith Estimate Vs HUD-1

There are a couple of documents you will hear about when you are buying a home. One is the Good Faith Estimate and the other is the HUD-1 Settlement Statement. Aren't they the same thing you may ask? No they are not, although they are used for figuring the closing costs on the home you are about to buy. Let me explain the difference between these two documents.

The Good Faith Estimate
Very simply, the good faith estimate (also know as the GFE) is a list of estimated items and their fees to close on the mortgage. You use this to compare apples to apples in deciding which lender you want to go with. Once again it is just an estimate of the closing costs associated with the mortgage. You are to be given this estimate within three days of completing the loan application.
Now to compare apples to apples you will need another document. This document is called the Truth in Lending Disclosure Statement (TIL). This document discloses all the costs associated with making and closing the loan. This document is also to be given to you within three days of the loan application.

With both these documents you can now compare lenders to find the best deal for you.

The HUD-1 Settlement Statement
This is a form listing the FINAL settlement of those closing costs you will need to pay to close on your mortgage and buy that home you are looking forward to.
You should get a copy of this form a day prior to closing to inspect according to the Real Estate Settlement Procedures Act (RESPA). Now you can compare this final document with the estimate document and the TIL document. This gives you the opportunity to question your lender or broker about any differences you may find.
No one is perfect so errors do happen. That is why you want to look at this document closely. If you have any questions, ask the closing agent to explain the item to you. Unfortunately, you don't have a lot of time before the closing to do this. So ask away and be persistent to be sure your final settlement statement is accurate.

What items are on a HUD-1
You will find items like the commissions paid to the real estate agencies, your home closing costs, those items required by the lender, title charges, recording fees, the gross sale price of the home and the total amount due the lender to name just a few.
You will also see a section that lists the items paid outside of closing (POC). These particular fees can include what are sometimes called "junk fees." Take a close look at these charges to be sure they match what you agreed to on the Good Faith Estimate. Many times this is where you might find those "unnecessary" fees. Be sure you understand these.
Although both the Good Faith Estimate and the HUD-1 Settlement Statement are similar, their purposes are very different. Remember, one is an estimate of those fees you will need to pay to close on your loan and the other is a list of the actual final fees you must settle close on your mortgage.

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