www.hudclips.org U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WASHINGTON, D. C. 20410-8000 August 9, 1990 OFFICE OF THE ASSISTANT SECRETARY FOR HOUSING-FEDERAL HOUSING COMMISSIONER Mortgagee Letter 90-29 TO: ALL APPROVED MORTGAGEES SUBJECT: Supplemental Information to Mortgagee Letter 90-14, Use of Good Faith Estimates to Establish Closing Costs Several questions have been raised regarding Mortgagee Letter 90-14. The purpose of this letter is to answer these questions and provide further information on the use of the Good Faith Estimate (GFE) to establish closing costs. First, although a GFE is not required in refinance transactions, most lenders will still use it in such transactions to itemize the borrower's closing costs. The reference to GFE includes any other similar form that lists closing costs that may be incurred by the borrower in the refinance transaction. Either the GFE or the other similar form must accompany all applications. Second, if the seller, or any other third party who has an interest in the transaction, intends to pay any of the borrower's closing costs that appear on the Field Office's list of acceptable closing charges, these costs should be shown and identified on the GFE beside the borrower's actual costs, if any. For purposes of arriving at the maximum mortgage amount and to calculate the loan-to-value ratio, this will provide the total closing costs to be added to the value, while the contract sales price plus the closing costs paid by the borrower will determine the acquisition cost. The following examples may prove helpful: Contract sale price $55,000 HUD Field Office List of Borrowers' acceptable closing charges as reflected by the amount on the GFE $ 2,500 FHA estimate of value $55,000 _____________________________________________________________________ 2 (A) Borrower pays all closing costs: Acquisition cost $57,500 Value plus closing costs $57,500 13. Settlement Requirements ___________________________________________________ a. Existing Debt (Refinance) $_______ b. Contract Price $55,000 _______ C.C. Pd. by Seller (Subtract) $ 0 $ 55,000 _______ ________ c. Repairs and Improvements $_______ d. Closing Costs (Inc. C.C. Pd $ 2,500 by Seller, Disc if Ref). _______ e. Total Acquisition Cost $ 57,500 _______ f. Mortgage (Without MIP) $ 55,125 _______ g. Required Investment $_______ h. Discounts $_______ i. Prepayable Expenses $_______ j. MIP-Paid in Cash $_______ k. Non-Really and Other Items $_______ l. Total Requirements $_______ m. Paid___Cash___Other (Explain) $_______ n. To Be Paid___Cash___Other (explain) $_______ o. Assets Available $_______ p. 2nd Mortgage Proceeds (If Applicable) $_______ (B) Seller pays all the borrower's closing costs: Acquisition cost $55,000 Value plus closing costs $57,500 13. Settlement Requirements ____________________________________________________ a. Existing Debt (Refinance) $_______ b. Contract Price $55,000 ______ C.C. Pd. by Seller (Subtract) $ 2,500 $ 52,500 ______ _______ c. Repairs and Improvements) $_______ d. Closing Costs (Inc. C.C. Pd. $ 2,500 by Seller, Disc. if Ref.) _______ e. Total Acquisition Cost $ 55,000 _______ f. Mortgage (Without MIP) $ 52,750 _______ g. Required Investment $_______ h. Discounts $_______ i. Prepayable Expenses $_______ j. MIP-Paid in Cash $_______ k. Non-Realty and Other Items $_______ l. Total Requirements $_______ m. Paid___Cash___Other (Explain) $_______ n. To Be Paid___Cash___Other $_______ c. Assets Available $_______ p. 2nd Mortgage Proceeds (If Applicable) $_______ The pertinent figures have been inserted on the Mortgage Credit Analysis Worksheets above. _____________________________________________________________________ 3 Third, on new construction (less than one year old), the HUD Desk Reviewer or Direct Endorsement Underwriter must state whether the property is or is not eligible for a high ratio loan. The entry should temporarily be made on the HUD 92800.5B under Item 3 as a special condition. In addition to closing costs and maximum mortgage amount, no entries are required under item titled Maintenance and Repairs and Utilities on the HUD 92800.5B. Therefore, Field Offices are no longer required to collect and maintain these expenses for Owner Occupancy Monthly Estimate Schedules. Appraisers are not required to document the URAR with these expenses. Field Offices will continue to collect information for fire insurance and taxes and the appraiser will enter this information on the remarks section of the URAR. HUD 92800.5B will be amended to reflect these changes in the near future. If there are any questions, please contact the Mortgage Credit Branch or the Valuation Branch in the local HUD Office. Sincerely, C. Austin Fitts Assistant Secretary for Housing-Federal Housing Commissioner