Shopping for a loan isn’t the same as shopping for shoes. Though loans do come in different sizes and cater to different needs, when you’re shopping for a loan you’ll mostly be looking at a lot of paperwork. Exciting, right? Your loan officer can explain some of these papers, but it’s important to be aware of a few steps you’ll go through before you get there. This will ensure the best fit possible.
Something that is an important part of every mortgage process is the good faith estimate (GFE). It’s an official document that is required by the Real Estate Settlement Procedures Act (RESPA) and therefore is carefully put together by the mortgage broker. Here’s why knowing how to read a GFE matters to you and your future mortgage.
What is a GFE?
A Good Faith Estimate spells out loan costs and fees in an itemized list and must be delivered within three business days of you applying for a loan. The mortgage lender enumerates the closing costs and other expenses related to the mortgage for you to review, and with this information, you can decide if the loan is right for you. In addition to closing costs you will find that inspections, taxes, title insurance, and other expenses are listed. Because the form is standard, you can request and compare these estimates from different lenders to see how the fees add up in each case. The GFE should be free, though you may have to pay a fee for a credit check to the different lenders. Basically, a GFE allows you to compare offers, become an informed buyer, and understand how the loan costs add up.
Even though a GFE is just that—an estimate—it is an official one. The lender doesn’t have too much wiggle room in changing up the terms of your final loan once you decide to borrow from them. Some items cannot change, others can change by only 10%, and others (like your initial escrow deposit, your daily interest charges, and your homeowners insurance, etc.) can, in fact, change between the GFE and the final loan. For a full list of what can and cannot change, or what can change by only a bit, please reference the government’s Consumer Financial Protection Bureau’s website about GFEs.
How to Read and Compare GFEs
There are some great government websites that can show you what GFEs look like, what to expect to be listed under each section, and how to read them. This form is an example that you can use when comparing different estimates. After reading through this sample form and comparing several estimates from different lenders on your own, you’ll be surprised at how quickly you can get the hang of understanding GFEs.
So when you are shopping around for loans while buying your next house, make sure to make use of the wealth of information out there—window shop, as it were. Mortgage rates and costs can differ from lender to lender, so take the time to understand the good faith estimates you acquire so you can find the right style to fit your mortgage needs.
Beyond the GFE
One last thing I’ll note: the cost of a loan is not the only thing to consider when deciding on which lender to use. Other items like availability of loan products, underwriting, escrow, and closing times, as well as customer support reputation are all things that should be considered beyond the GFE. As with anything, sometimes you truly get what you pay for.
Nice newsletter. Good article. Good information. Thank you. Carol
For conventional financing, borrowers with scores at 740 or anywhere above generally receive the same loan pricing (rate and cost). That being said, the better your credit the higher your chances of receiving loan approval with high debt to income (up to 50%) or high loan to value (up to 95%) which can be a major benefit when applying for a new loan. For Jumbo financing, borrowers with credit scores above 800 are generally rewarded with both better pricing and easier guidelines. There are no situations where better credit is a negative when obtaining new financing so we should all continue to strive to reach and then stay in the 800’s.
What are the advantages of a score over 800
Thank you Mike for this information. As a residential realtor the information that you provide is crucial to a successful transaction for my clients. You are indeed a pleasure to recommend to all of my clients. You are so professional, thorough, conscientious and pleasant to work with. !!
Hi Dane! Wanted to make sure I'm clear on this. Am I right in saying that on whichever remodel is done you still take a loss rather than an increase in value - the ROI will never exceed 100% of cost?