Good Faith Estimate Explained
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Loan Officers are requried to send a Good Faith Estimate to their clients as part of their pre disclosures. The Good Faith Estimate will have a line by line description of all finance charges associated with the loan. The Origination Fee is the fee your Loan Officer is charging to originate your loan.
When looking at your GFE look to see that the lender/broker has included what the title company will be charging. Though your lender/broker is not able to waive these charges they may be able to marginally influence the charges. One item that is not negotiable is the title insurance. This is usually divided into two parts, lender’s insurance & owner’s insurance.
Other charges can be Loan Discount or Loan Discount Point. This is most commonly referred to as “Points”. It is the cost of buying down the rate to reduce your overall monthly payment. The more you pay to buy down the interest rate, the less you will have to pay on the overall interest on the life of the loan. Some loans will have no points and some may have a required cost due to the particulars of the loan.
If an escrow account is going to be setup for you (this is usually a good idea for new homebuyers and those who have a harder time setting money aside for later) then look in the section for Reserves Deposited with the Lender. Depending upon your state you will have anywhere from 2-8 months of reserves that are included that will be held by the lender for your escrow account. The two items held in reserves are your home owner’s insurance and your property taxes.
Another item located on the Good Faith Estimate is Government Recording and Transfer Charges. These are the taxes that most jurisdictions include to get their fair share. On a purchase the taxes, stamps and recording fees are usually split between the seller and buyer. On a refinance, the taxes fall solely on the homeowner. Make sure this area is completed so it does not come as a surprise down the road.
Another form that is often used in replacement of the Good Faith Estimate is the MLDS. Mortgage Loan Disclosure Statement.
Just remember when looking at the Good Faith Estimate there will be Estimated Closing Costs and Estimated Prepaid Items. The prepaid items (escrow monies, taxes, etc.) are mandatory collections. The Closing Costs are what should be looked at attempt a true apples to apples comparison.
The Good Faith Estimate is often the first from that will disclose many of the most important aspects of your loan. The law requires your good faith estimate be provided by your lender or broker no later than 3 days from the receipt of your complete application. Be sure to carefully examine the interest rate, term, monthly payment, and amount due at closing to ensure the loan you are applying for is what you think it is.
Learn How To Compare Mortgage Rates
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Knowing which financial institution can offer you the best mortgage rates with the service you expect is not always a simple task. How do you know when you have found a good deal or not?
There are a few things you must bear in mind as you peruse a variety of different mortgage rate quotes to zero in on the best one. The rates being offered are important as is the Good Faith Estimate (GFE) and the level of trust that you have for the company and the individual whom you will be working with. Keep all of these important points in mind as you rate shop.
If you are shopping for a 100 percent loan and you want to compare two loans then this is the most effective way to do it- if the loan you are seeking is an 80/20 loan that is 160,000 and 40,000 then what you need to do is multiply the rate for the first loan by .8. Next, take the second loan rate and multiply it by .2. Take the two numbers you come up with and add them together. The number you end up with is your rough “weighted” interest rate.
When a mortgage lender quotes you a rate on a home loan, you need to compare the weighted average of what the 80/20 offer is in relation to the rate for the single loan. This can help you to figure out what financially is the best course of action for you to take.
If the loan terms are the same, then you can use the APR as a means of comparing the two. However your best bet would be to take a careful look at the interest rate and closing costs fro the property. Then ask yourself how many years you can anticipate at the moment that you will live in the house you wish to purchase. Once you have an estimated timeframe you can then calculate the complete cost of the home loan.
Choosing the lowest interest rate is not your only consideration. If the closing costs are high then this can sour a deal that started out looking very good. If you are comparing two different types of mortgages then do so by comparing the APR of the rate quotes you are given. Take a look on the Truth in Lending disclosure that you are provided. This is something that the law deems necessary to give everyone seeking a mortgage.
As a prospective homeowner you need to be familiar with interest rates and the like. If you do not understand what the mortgage broker is telling you then how can you make a smart and informed choice?
The more information about yourself that you can provide to the mortgage broker the better it will be to find the rate quote that is most appropriate for you. If you do not want to answers questions about your job and income then it is not the right time for you to be shopping for a mortgage.
What else must you be prepared to divulge to the mortgage broker? You must know the approximate value of the property you are interested in purchasing, as well as whether the home is in an urban, suburban or rural area, whether you will reside in the home or plan to rent it out. You also need to have an idea of what your credit score is and whether or not your rent payments in the past have been paid on time every month. If there are any bankruptcies on your record is also relevant to divulge, as well as a host of other things that the mortgage broker will think to ask.
All of these questions will help to determine an honorable interest rate for you. It is important to be able to know and trust that the interest rate a mortgage broker quotes you is one that he or she will honor when the time comes to do so. The more information you give the better the choices will be that will be laid before you. However you may have to talk to a number of different brokers and answer an exhausting amount of the same questions before you find the one that can offer you the best deal possible.
When considering rate quotes from a variety of brokers, ask for a Truth in Lending statement (TIL). What this will clearly show is the mortgage’s APR. While your payments will not be based on the APR, you can do a comparison of the GFE and the TIL to better determine how much you will end up paying overall.
