Your guide to the good-faith estimate
Here's how to use the GFE, the form that itemizes fees and helps you compare mortgage offers.
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How much is this new loan going to cost me?
Most people naturally ask this when they borrow money to buy a house or when they refinance their mortgage.
An approximation of the final figure appears on the good-faith estimate, a three-page, government-mandated form that mortgage brokers and lenders must give prospective borrowers within three days of a loan application.
Here's a section-by-section dissection of the form.
Purpose and shopping for your loan
The top two sections on Page 1 show why the form is important. They are a summary of loan terms and estimated settlement charges, and borrowers can use them to shop and compare terms and charges that multiple lenders or mortgage brokers offer.
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This section discloses when the GFE expires and whether the interest rate is locked or floating, says Vicki Bott, a former assistant secretary for the Department of Housing and Urban Development.
"If the interest rate is floating, the terms of the GFE may only be available for a short period of time," she says in a HUD-produced video about the GFE. "If your interest rate is locked, you still must close your loan on or before that date for that interest rate to be effective."
Summary of your loan
This section discloses the initial loan amount, interest rate, monthly payment and loan term, says Kimberly Green, operations director at Quicken Loans in Detroit.
The payment includes principal, interest and mortgage insurance, if any, but not property taxes or homeowners insurance.
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The series of checkboxes spells out if the rate can rise, if the loan balance or payment can increase and if the loan has a prepayment penalty or balloon payment. If "yes" is checked on any box, further details should be disclosed.
"It's very cut and dried, so there are no surprises," Green says.
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This section discloses whether the lender will collect a portion of the annual property taxes and homeowners-insurance premium each month in addition to the loan payment. If so, those amounts will be held in an escrow account and used to pay those expenses when they're due.
Summary of your settlement charges
The "A," "B" and "A+B" lines at the bottom of Page 1 show costs that are explained in detail on Page 2. "A" is the total of the lender's loan-origination charges. "B" is the total of fees for other settlement services. The costs could change before the loan closes.
Understanding your estimated settlement charges
he first two parts of this section disclose more information about the loan-origination charges and interest rate. If the first box in Part 2 is checked, Part 1 includes all the origination charges. If the second box is checked, the loan features a credit that reduces the charges and raises the interest rate. If the third box is checked, the loan includes points, which increase the charges and reduce the interest rate.
Parts 3 through 11 summarize the other closing costs, including:
- Lender-required services — an appraisal, for example
- Lender's title insurance
- Owner's title insurance
- Recording fees
- Transfer taxes
- Escrow-account deposit, if any
- Prepaid interest
- Homeowners insurance
Some of these charges can't change, others can increase no more than 10%, and others are unrestricted, allowing borrowers to select companies they prefer.
"Certain fees are held to a 0% tolerance. If it increases by a penny, we have to cover that as a lender," Green says. "If it's a client-chosen fee that ends up being higher, the lender is not responsible for curing or covering that amount."
The chart at the top of Page 3 shows, in another format, which charges have zero tolerance, which have 10% tolerance and which can change.
The trade-off table
The table at the top of Page 3 helps borrowers weigh whether to pay higher closing costs to obtain a lower interest rate or to pay lower costs and accept a higher rate, Bott says in the HUD video. The choice, she says, is between paying higher closing costs now or paying more interest later.
The shopping chart
The second table on Page 3 lets borrowers compare the terms and total estimated settlement charges of four loans side-by-side. The chart includes only the highlights of each loan, not all the details.
Reading this page is such a waste of time.
Purchased a mobile home 7 years ago. Not a bad deal at the time I thought.
With the burst of the most egregious and corrupt white collar crime ever perpetrated on the american public, ( ie: the "housing bubble"), we now are subjected to the kind of tripe this article portends to "help us with."
I couldn't give my home away let alone sell it and I live near the beach in Calif.
I've paid $80,000 in "space rent," better know as dirt I'll never own and an additional $40,000 in mortgage pmts which, by the way, is considered a "conventional loan" because I don't own the land. This, on a home situated on a "land fill," even though it's a half mile from the beach.
You want to write about something to help someone. Suggest how to get out of the worst housing deal I ever made. Or are you part of the "partnership" that owns these properties, works with the local city counci, employs outside management to run the facility and sits back and shafts everyone in here with exorbitant space rents that are more than the mortgage pme?
As a mortgage broker and banker for the last 16 years, the new GFE being used for almost two years now is a horrible failure. We in the industry, both on the banking side and the closing attorney side, knew this from day 1. Case in point, a new revised form will be coming out, possibly by years end. Page 1 is actually very good. Clarifies things like fixed rate, pre payment penalties, fixed or adjustable rate, etc. Then it falls apart. Box A is in fact any and all broker and/or bank fees. This figure can not change. What it does not tell you anywhere is if you are paying "points". There is no seperate line item for this. It's buried in the Truth in Lending form. Box B then goes on to include not only actual charges such as attorney fees and title insurance, but also an estimate of any money needed to set aside for your escrow account and an estimate of per diem interest. Escrow monies are not "charges", yet they are added into the bottom line. so when I tell a client the closing cost is "$2,500 and they see A+B = $5,000, they think I lied. Line A+B is the "settlement" costs, and it says that. Consumers don't read or understand the difference.
This was all done to simplify and clarify the process so that consumers could shop for a loan. But here's the problem. Consumers will never be able to shop for a mortgage. Ther are no laws or forms that will change this. They believe they are shopping by calling 10 people and ask, "what's the rate". I immediately know they have no idea what they are doing. The only way they will ever be able to truly shop, possibly, is to actually apply for a mortgage with as many banks as they choose to receive a gfe. But they will never do this for one, they don't have time to do that and because they believe they've shopped ahead of time and chosen one place to apply and therefore are only receiving one gfe. Not to mention they think hearing a rate on the phone, before I've gotten credit, income and the appraised value, that they are getting that rate. They are forcing everyone to lie, or guess. Essentially they are shopping for the lowest lie. The only solution is to work with an honest reputable mortgage banker. Only he/she is able to "shop" for their client.