I am shopping for a mortgage for the first time in many years. I understand that many things have changed recently, and that the standard mortgage disclosure forms are different. I even heard that they are supposed to save me $700! How do I get my $700, and what else do I need to know about the forms?
I think what you are referring to is HUD's estimate of what the new Good Faith Estimate (GFE) disclosure can save the average mortgage borrower by making it easier for them to comparison shop for a loan. The new form does make things easier in the following three ways:
- It puts the most important features of a mortgage, like rate adjustments and prepayment penalties, right up front where they are easy to see. Before, these important provisions were hidden away in special riders.
- It details the costs of the loan, including title and escrow charges, and the estimates must either be exact (for the loan origination fee , for example) or within 10% (for title insurance and other charges). This is intended to eliminate the oft-voiced consumer complaint that actual expenses bear little resemblance to those disclosed upfront.
- It discloses an interest rate and tells you how long that rate quote is valid.
However, reports thus far show that the 2010 GFE is not fool-proof. Many folks find it confusing and title companies report an increase in questions from confused borrowers.
What the New GFE Doesn't Do
It doesn't catch a moving target. Mortgage interest rates change with financial markets, which move continuously. So even if you contacted several lenders in a short time (using a website like this one or calling them one by one), there is little guaranty that you can compare the GFEs side by side because they correspond to different times.
It doesn't guarantee an interest rate. Only when your rate is locked do you have a commitment from the lender that can be enforced. And even then, if circumstances change, for example if your home appraises for less than expected, your credit score drops, you choose a different mortgage program, or your employment changes, you may be looking at a different interest rate. So once you're ready to lock in an interest rate, you may want to compare rates between your lender and a few competitors.
It also doesn't force a lender to commit while you are just shopping. To issue a new GFE, the lender requires rather personal information from you. Loan pricing depends on (among other things) how you plan to use the property, your credit score, and the size of your down payment. If you are purchasing a home and don't have a property address yet, your GFE won't be worth the paper it's written on because you need a property before you can lock in an interest rate. And remember, your lender isn't committed until you lock an interest rate.
Finally, the lender isn't required to give you a GFE until you actually apply for a loan, and it has three business days from that time to get you the disclosure. While many are willing to provide it earlier, others may refuse to do so, or may try to fob you off with a "loan scenario" or other such proprietary form. Understand that this commits them to nothing; if you are willing to provide the information necessary to issue a valid GFE, any lender worth working with should be willing to supply the official form.