The good old Good Faith Estimate.... it could sometimes be your worst enemy, depending on the loan officer and how they actually fill it out.
It doesn't matter if you are applying for a FHA mortgage or a conventional mortgage, all good faith estimates should be accurate. I have seen many loan officers low ball their estimates not only on their points, but on the 3rd party charges. This can make shopping for a mortgage frustrating and more difficult.
I just had a client recently compare my good faith estimate with that of another lender. My title charges were about $500 more in costs. But I knew my estimate was alot closer because all title companies basically charge the same amount. The lesson to learn here? Please read below.
It doesn't matter if you are applying for a FHA, conventional, VA, or subprime mortgage. The Good Faith Estimate (GFE) is very critical when shopping for a mortgage. But you have to be careful because more than 75% of this piece of paper is an estimate. Some loan officers will cut corners just to make their total estimate look cheaper.
Three things that you want to look for when you first look at your GFE.
- Look at the loan program and make sure this is the program that you want. If it was an adjustable, it would say differently. (Yellow highlight -- Upper right hand corner)
- Look at the rate. Make sure this is what you discussed when speaking to your loan officer. (Up top, middle of page, yellow highlight)
- The 3rd issue are the fees. Everything in section 801 to 815 would be the lenders fees or anything the lender is going to charge you. Don't ever be fooled if one lenders fee is higher than the other. You still need to compare the rate. You also need to speak to your accountant to find out what can be written off. (left hand column with 10 to 15 highlighted items)
(Speak to your tax accountant to make sure what can be written off and what can't. But typically just the points can be written off)
What not to do when comparing good faith estimates.
- Don't compare total fees at bottom of the GFE, which I will explain why below.
- Just don't compare the APR of the loan. (explain below in a link)
Conclusion : Again, don't always shop and ask for total fees. Compare the lender's fees the most. In regards to your escrows, each state is different. Your property taxes are paid either quarterly, twice a year, or once a year. I have seen some loan officers sometimes not show enough for your escrows in regards to the prperty taxes. It's very easy for a loan officer to say at closing, "these aren't my fees, so all I can do is give an estimate." Word of advice, yes, it's an estimate. But if they have been doing this for sometime, they should have a good idea of these other fees. Also, if they don't know, they should be asking the title company or someone else. Lastly, just be careful, because some of these figures are not worth the paper that they are written on. It's just that, an estimate based on good faith. Make sure that you always speak with a Mortgage Professional. Just be careful not to shop yourself right out of the market.
Lastly, if you have 3 good faith estimates in front of you, always go back to the person that you had the best feeling with, that you are comfortable the most with, and share the other 2 with them. Just don't run to the person with the best rate and or fees. I always like my clients to come back to me no matter what. I might be able to point something out to them. And this topic must be discussed when receiving a GFE, otherwise this GFE doesn't mean squat. Mortgage Rates -- Locking or Floating -- Part 2 of 2
Reminder : Don't always compare the APR also. APR vs Rate -- Understanding the difference...... And keep in mind, rates change daily. Don't take a week to shop. And if someone takes more than a day to get you a good faith estimate, this might be a red flag. If I am not really busy, it would take me a few hours. If I am really busy, less than 24 hours. If it takes a few days, run, don't walk from this individual.
Lastly, there is a difference between a Pre-Approval and a Pre-Qualification letter.
The Mortgage Process Series :
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For more information on FHA loans, please go to this link. The FHA Expert
For more information on how you can obtain your dream home, please click here : Mortgage Financing Options
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!
Copyright © 2008 by Jeff Belonger
JASON..... thanks.... just recently, I am having people again, compare the total costs and not what the lender charges. I just thought it was time to explain this again. Thanks for the kind words.
MELISSA.... thank you for the polite compliment and good to see you around again.
MATTHEW.... I haven't seen missed title charges, but definitely charges that are 30% lower than they should be. And as you and I both stated, "yes, those aren't my charges. So what's your point." - lol
MELINA..... it must be hard for a realtor, because it could be a dine line to just say straight up... that loan officer is wrong... or that loan officer is a crook... etc etc.. I know some realtors have done it and I had one do it to me that I found out about and I still retained the client and saved them money after the fact. But yes, some buyer's just don't get it.
DANNY.... I am sure, after you have been doing this for a while, I am sure you have seen many. It's always easy at the end, when it's over, to say I wish I would have listened. People just need to pay attention and learn from this, what I wrote about above.
DAN..... now, excluding the taxes, that's a big one... on purpose or a mistake, that's a big one.. huge. And to ask you to split the cost? OUCH... I agree, no way. Now, if everything was on the up and up, no mistakes.... and the buyer needed some seller help. Sure, I could see the lender and realtors chipping in some. You know that they had to eat it, if it closed. I am sure they got the buyer to come up with something also. Now, CT's taxes are cheaper than NJ's also... so it might not have been as much as I would expect... ??
VIRGINIA..... yes, you can print this out and use my name. Thanks for asking....
DONNA..... my pleasure. I love writing about this kind of stuff. I think the consumer really needs to know this and what to look for. I can't tell you how many people I talk to never see a good faith estimate until later. And then they don't even know their rate or payment, even in the beginning. The whole process can be sad at times, hence why people need to read this in my opinion. thanks for the kind words.