Taking out a mortgage loan requires careful consideration of all the costs associated with a purchase or refinance transaction. For many, trying to do their due diligence of mortgage comparison shopping, reading, analyzing and interpreting the good faith estimate can be somewhat of a misnomer. The revised good faith estimate goes into much greater detail than simply providing an itemization of the costs.
For our purposes, go ahead and download the HUD good faith estimate form here. Feel free to email us Scott.Sheldon@nafinc.com for the form as well.
Following is a section by section breakdown of each of the major components of the good faith estimate for interpretative purposes.
Important dates section-the date the interest rate for this GFE is available through is usually 45 days from the date of the original application if you are choosing to float your loan, that is to not lock in your interest rate. If your interest rate is locked, it will be the date the loan lock expiration occurs on. For example if you lock on the first of the month, the expiration will be 30 days out on the 30th of that calendar month.
The estimate for settlement charges is also the same date as the lock date. The interest rate has to be locked at least three days prior to settlement. Settlement is defined as the final closing of your purchase or refinance mortgage loan.
Summary of your loan-remember this is always subject to change. Your initial loan amount is the original loan amount that is set up by the mortgage lender. On refinance mortgages, this is subject to change if you decide to finance the closing costs or pay them out of pocket. The initial amount is also subject to change on refinance because the payoff amount can only be estimated upfront.
Your mortgage loan term is the term of the mortgage i.e. 30 year fixed 15 year fixed etc. The initial interest rate can be the interest rate established by the mortgage lender if you are floating your loan or if you’ve already choose to lock in your interest rate this would reflect the locked rate. Your initial monthly amount owed for principal and interest in mortgage insurance is the estimated mortgage only payment associated with your transaction.
Your interest rate can only rise if you are floating your loan. If you are making your payments on time your loan balance cannot rise meaning there is no negative amortization associated with your loan. Most mortgage lenders today have banned these types of products, anyway.
Additionally, most mortgage loans being originated today do not contain prepayment counties or balloon payments so long as they are conventional and/or government mortgage loans.
Escrow account information
This section requires you to be informed as to whether not your loan will contain a monthly escrow account for property taxes and fire insurance. If you have 20% equity in your property, an escrow account is an elective. If there’s less than 20% equity in the property, an escrow account becomes mandatory until there is 20% equity.
Mortgage Comparison Shopping: getting into the meat and potatoes of the settlement charges.
Understanding your estimated settlement charges-the mortgage origination fee is the fee charged by the mortgage lender and this encompasses the following items which does create confusion.
Loan origination charges include origination points, discount points, administrative mortgage company fees, lender fee, processing fee and any other fee the mortgage lender might assess. The reality of it is that origination charges are really only discount points, this new good faith estimate interpretation shows any lender fee as origination charge. It’s important to you as a consumer purchasing or refinancing, that you delineate between true origination fees and lender fees that are typically assessed on loan transactions.
Your charge or credit for the points for specific interest rate are also itemized under this section in the form of an origination fee. The good faith estimate for mortgage comparison purposes shows a dollar figure rather than a percentage figure in this category.
The following other fees are also disclosed including:
- government recording charges
- transfer taxes, if applicable
- initial deposit for your escrow account otherwise known as earnest money on the purchase transaction
- daily interest charges otherwise known as per diem interest charged on loans
- homeowners insurance to ensure the property is rebuilt in the event of damage
Using the trade-off table
This part of the good faith estimate shows the true mortgage loan comparison shopping that consumers do when selecting the most appropriate mortgage loan. This provides the initial loan amount, initial interest rate, initial monthly payment on the loan set up versus lower settlement charges as well as the same loan with a lower mortgage interest rate. This component of the good faith estimate focuses on over disclosing the interest rate and settlement charges several different ways.
Using the shopping cart
This component of the good faith estimate gives you the ability comparative shop up to four different home loan programs based on the following parameters.
- loan originator name
- initial loan amount
- initial interest rate
- initial monthly amount owed
- Rate lock period
- can the interest rate rise
- can the loan balance Rice
- can the monthly amount over the rise
- prepayment penalty
- balloon payment
Whenever you apply for a mortgage loan, the mortgage lender must provide you a copy of the good faith estimate along with various other mortgage loan disclosures. When the mortgage company has a loan amount, credit report, purchase price and/or value, that constitutes an application and they must provide you a copy of the good faith estimate within three days of applying for your home loan. At this point, you’ve probably already done your mortgage comparative shopping, meaning the good faith estimate document arrives late.
Be smart: do your mortgage loan comparison shopping with each loan officer
Here is how to do your mortgage loan comparison shopping before applying for a home loan.
If you are deciding between 2 to 3 mortgage loan officers for your purchase or refinance loan, get a mortgage rate sheet from them detailing the loan amount, loan terms, mortgage payment, escrow account details, and full closing costs. Most mortgage loan officers can provide a mortgage rate quote giving you the initial loan information you need to do your proper comparison shopping. Use the good faith estimate as a barometer of the costs associated with the mortgage loan company that you have chosen to originate the loan.
As a consumer, it is paramount to get the best combination of rate and cost to ensure you’re getting not only a competitive transaction, but also that it’s fair deal, given the market will bear.
*Mortgage Tip: the mortgage company that is in line with the other lenders and is an average of the three other comparisons is usually a smart choice.
Take advantage of the most affordable mortgage loan programs and interest rates available in the market today. Get a complementary mortgage rate quote, detailing all of the costs today. Discover the easiest way to do your mortgage loan comparison shopping by reading the good faith estimate.