In this post I will continue my explanation of the old good faith estimate. In previous posts we covered typical lender fees on the good faith estimate, what a good faith estimate is in general, and I showed you a video about how most loan originators feel about the gov’t mandated “new good faith estimate.”
In this portion of the good faith estimate you will find what are called reserves and pre-pays. These are things that will have to be paid up front at closing or will go to set up your escrow account. These items are yours and they benefit you, the home buyer. Even if the seller pays them on your behalf they are still considered to be yours after closing. This is mainly because only the portion actually used can not be refunded if the home was sold again the very next day. Here is what this section looks like.
On the left side of the sheet are items that must be paid in full at closing.
Line 901 is “prepaid interest.” Prepaid interest is interest that needs to be collected at closing and will equal the daily interest charged to the loan from the date of closing until the end of the month. The closer to the end of the month your closing date is the lower this amount will be.
Line 902 is mortgage insurance. This good faith estimate is for a VA loan and since VA loans don’t have an upfront mortgage premium this line is left blank. If this were an FHA loan this line would not be blank.
Line 903 is hazard insurance, often called home owners insurance. This number is something you have a little control over and will need to discuss with your insurance agent.
Line 904 is county property tax, most of the time this will be left blank. In certain instances though, previous or current year taxes must be paid at the time of closing, and under those circumstances, you may find this lined to be filled.
Line 905 is the VA funding fee. This line is the equivalent to the mortgage insurance found on line 902. In most cases this amount is financed by the buyer and added to the loan amount. Of course it may be paid in full at closing by either the buyer or seller depending on an agreement being made about that prior to closing.
Line 906 is for flood insuance which is only needed if the property is located inside of a flood plain.
On the right side of the sheet are items that will go toward setting up your escrow accounts.
Line 1001 is the portion of your home owners insurance collected at closing. In this example 3 months have been estimated to be collected. There must be enough in the account so that one year later your home owners insurance can be paid again. Of course it will continue on like this for as long as you own the home. Or at least as long as you have an escrow account set up.
Line 1002 is mortgage insurance. This line, to my knowledge, is almost always blank. Mortgage insurance is only charged on a monthly basis so only in very rare circumstances is there a number in this blank. Although I guess if the seller is willing to give you a credit to pay some of this in the future it may go in this blank.
Line 1003 and 1004 are for property taxes. The amount found in this line is how much will be need to be collected at closing so that there is enough money in the account to pay taxes when they are due, which will be at some point in the future.
Line 1005 is for flood insurance and it is, similar to home owners insurance and taxes, what will need to be collected at closing so that it can be paid again one year from the closing date.
The remainder of the lines are for any misc. things that may be needed.
In my next post we will cover the attorney’s fees, recording fees, and any charges due the state or local governments.
