From the Washington Post: Big new law and lots of changes this year to the Good faith estimate (GFE). What are loan shoppers doing?
The most recent version of the GFE, released at the beginning of last year, contains space for consumers to take one lender’s estimates and get competing quotes from as many as three others. It also requires lenders to stand behind their estimates – guaranteeing that some of them won’t increase by even a penny at closing, and others won’t increase more than 10%.
But the survey found that the GFE may not be improving shopping as intended. After receiving the disclosure, 56% of buyers say they did no comparison shopping among other lenders. Twelve percent used the form to contact just one other lender, and 10% weren’t sure whether they actually used the GFE at all. Just 3% said they comparison-shopped rates and terms at four lenders or more.
The survey, conducted by market research firm TNS Global for mortgage lender ING Direct, also found that 53% of those buyers who looked at the GFE spent less than 30 minutes doing so. Twenty-six percent either never looked at it or don’t know whether they looked at it. Forty-nine percent of buyers said the GFE disclosure was too complicated, “a waste of time” or they weren’t sure. Just 37% rated it “useful.” The survey had a statistical margin of error of plus or minus 3.2%.
When you apply for a mortgage, the government requires your lender to give you a “Good Faith Estimate” (GFE) within three days of your application. This document sets out all the costs associated with the mortgage, and most experts recommend against committing to a loan before seeing it. Ask questions! Here are some of the things to look out for.
Interest rate and points
A GFE shows your interest rate and any discount points you can pay at closing. Make sure you understand that paying discount points will buy you a lower interest rate and lower payments, but it will take many months before the savings make up for the fee.
The long list includes the appraisal fee, credit report fee, application fee, mortgage broker’s fee, and interest rate lock-in fee, if any. Watch for big differences between lenders — no fees should vary widely. Also, watch for extra fees applied only by certain lenders, or missing fees that may not have been included but are sure to appear later. Ask a lender about any fee that seems out of line.
Title and transfer charges
The closing or escrow fee, title search and title insurance fees, and government taxes are pretty much standard. However, you might get a better rate (called a reissue rate) on the title insurance if it has been less than five years since the previous owner took out a policy on the property. And you don’t have to accept the lender’s title insurance company or attorney; you may try to find one who offers a lower price. Some states set the price of title insurance.
One item paid in advance is the interest on the loan for the period before the first payment date. Putting your closing date close to the end of the month can minimize this charge.
A GFE may specify a figure for home or hazard insurance but it may be less expensive to arrange your own. Also, if you are being charged for mortgage insurance or flood insurance make sure you know why.
Fees may rise
It’s important to remember that a GFE is only an estimate. The figures quoted could rise by 10 percent to 15 percent, or even more, by closing day. This may happen because a lender has simply applied the standard rates of the service companies it deals with, and then had to adjust them later. But some lenders could also be understating their fees. Unfortunately, the government doesn’t impose any penalties on lenders who issue an inaccurate GFE.
You can protect yourself from nasty surprises by asking your lender to quote you the exact final costs, or to “lock in” its fees. Or you can look for one of the “bundled” fee packages now offered by some lenders — these might offer a cheaper overall price.
Truth in Lending Statement
Along with the Good Faith Estimate, a lender will also give you a Truth in Lending (TIL) disclosure form. This gives you the Annual Percentage Rate (APR) on your mortgage, which takes into account discount points, mortgage insurance, and other fees on top of the basic interest rate.
The Truth in Lending form also lists the total finance fees, the amount financed, the total amount you’ll pay over the life of the loan, the total number and amount of your payments, and when they’re due each month. And it contains other important details, such as whether the mortgage is assumable if you sell the home, and whether there is a penalty for prepaying the mortgage; if the form says you “may” have to pay a penalty, it means you probably will.
Most important, understand that the figures in the TIL form can also change. If your interest rate or any of the fees go up by closing day, so will your APR and the overall cost of your loan.
Click here to get loan information before the rates go up. To get started on viewing homes, condos, investment properties, pre-foreclosures, bank owned foreclosures (REO’s) or thinking of selling your property, please contact me today for free counseling at (619) 301-0200 .