Mortgage Loan Shopping Just Got Easier
Some might think that shopping around for the best home loan would be easy. Surely, all you have to do is compare mortgage rates and pick the lowest. But, of course, it's more complicated than that.
Some mortgage loans have fixed rates while others have adjustable ones. Some carry a balloon payment while others don't. Some have a prepayment penalty while others haven't. And that's just the start of it. What about settlement charges? How do they break down and which ones can go up before closing--and by how much?
Well, from now on, all will be clear. Or, at least, clearer. As of January 1st, the Real Estate Settlement Procedures Act changed the regulations governing Good Faith Estimates (GFEs).
What's a Good Faith Estimate?
A GFE is a document that mortgage brokers and other loan originators have to provide to home buyers. GFEs have been around for years and lay out the basic terms of the loan, together with a description of settlement charges.
However, until now they haven't been standardized, which has made it difficult to compare different mortgage loans from different mortgage brokers. Moreover, there have been few controls over how similar actual settlement charges have to be to those shown in the GFE. According to the U.S. Department of Housing and Urban Development (HUD), under the new regulations:
The GFE is a three page form designed to encourage you to shop for a mortgage loan and settlement services so you can determine which mortgage is best for you. It shows the loan terms and the settlement charges you will pay if you decide to go forward with the loan process and are approved for the loan. It explains which charges can change before your settlement and which charges must remain the same. It contains a shopping chart allowing you to easily compare multiple mortgage loans and settlement costs, making it easier for you to shop for the best loan. The GFE may be provided by a mortgage broker or the lender. Until they give you a GFE loan originators are only permitted to charge you for the cost of a credit report.
What Does a GFE Contain?
The new GFE will show:
- Important dates that are milestones through the mortgage loan process
- A summary of your mortgage loan
- Escrow account information
- Adjusted origination charges
- Charges for all other settlement services
- Total estimated settlement charges
- A description of which charges can change at settlement and by how much
- A list of potential settlement service providers
- A trade-off table that shows how your monthly outgoings could change were you to opt for different settlement charges or a different interest rate
Mortgage Quotes Come First
But before all that GFE business, the first step for anyone buying a home or refinancing is to find some great mortgage loan deals. Compare the best mortgage quotes here.
