Picture this: you discover the house of your dreams, write an offer, and the seller accepts. Hooray! You're under contract. The inspector checks out your home and gives it a thumbs-up. Everything is rolling smoothly. Now all you need to do is nail down your financing.
You submit a loan application. Three days later, you receive a perplexing document called the Good Faith Estimate (GFE) ... and it might as well be written in Greek. You're not sure what it's saying, other than, "Hey, champ, pay up."
Don't sweat. It's not as complex as it seems — and you might even be able to negotiate some of its costs down. Let's take a look.
If your loan has a "balloon payment" (a date when the remaining balance is due in full), a "prepayment penalty" (a fee if you pay the balance in full early), or the capacity for your loan balance to rise, you'll be able to spot that in this section.
Negotiation tip: Weigh the options. Some lenders will issue a lower interest rate — perhaps as much as a quarter-percent less — if you agree to a prepayment penalty.
Ask the lender if the penalty is a flat fee or a percentage — in other words, what are the precise terms of the arrangement? Many penalty provisions limit your payoff to 20% annually and expire after five years (meaning you can pay the balance in full by year six).
This section of the GFE outlines whether your property taxes, insurance, and other property-related charges will be held in "escrow." (Which is a fancy way of saying the money you pay is held by a certified third party.)
This is usually straightforward and non-negotiable. Many lenders require this to make sure you stay current on your taxes and insurance.
Loan origination charges
Here's the big opportunity to negotiate. The "loan origination charge" is the fee you pay the lender for issuing you this loan. It usually comprises a processing fee, underwriting fee, and base origination charge. It's often 0.5% to 1% of the loan amount ($500–$1,000 for every $100,000 you borrow), though in some cases it can reach as high as 2%.
If you see a fee that's on the higher side of this spectrum, feel free to ask the loan officer to notch it down. Remember, you're the consumer. You can shop around for a better deal.
Negotiation tip: Let your loan officer know that you'll be getting multiple GFEs and that the loan origination fees, along with the interest rate, will be a crucial determiner of which one you choose.
Loan officers are salespeople; they get paid when they close a deal. Politely but firmly asking for a lower loan origination fee might result in the easiest several hundred dollars you've ever saved.
Here's the part that sometimes perplexes first-time buyers: You can either get a credit or pay a charge. Getting a credit will reduce your settlement charges (aka "closing costs"), while paying a charge will increase your closing costs.
You might be thinking: "Obviously, I'd rather pay less at closing. Right?"
Not so fast. Paying this charge, known as "points," can buy you a lower interest rate. Getting a credit, by contrast, may result a higher interest rate.
Your GFE will wrap up with a list of other charges, like transfer taxes and government recording charges. These are set by the municipality you're buying in and non-negotiable. However, you may be free to shop around for other required services like appraisals and flood certification fees.
While some charges are set in stone, the reality is that others are more flexible. You negotiated with authority when placing an offer on the house — don't stop negotiating during the loan process.
This article originally appeared on Trulia.com.
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