The new GFE has a lot going for it: the terms of your mortgage are prominently indicated, it discloses how long the rate quoted is guaranteed, and the loan fee estimates must substantially match the actual closing costs. If the lender is wrong, it pays the difference, not you. While the US Department of Housing and Urban Development (HUD) estimates the form will save borrowers an average of $700, it's not perfect.
Do Your Mortgage Lenders' Estimates Count?
While big lenders like Bank of America began implementing the new GFE form right away, other mortgage lenders refuse to give a GFE to borrowers until they are required to by law--that is, when a customer actually applies for a mortgage. Some even claim that the new law precludes them from providing this disclosure, but actually the new law just forces lenders to honor the fees disclosed. Many lenders prefer to offer non-binding "worksheets" that show fee estimates but don't place any obligation on the mortgage company. While HUD allows the use of worksheets, the agency wants consumers to understand that a worksheet does not obligate the lender the way a GFE does.
In addition, by law, only the final GFE must match the closing statement, and updated GFEs may be created any time there is a "material change" in the application--mortgage lenders are not obligated to honor a rate and fee structure until you actually lock your loan's interest rate. Then, you get a new GFE. If the property appraisal is lower than expected, or your credit score changes, or you take a new job, or you switch from a 30-year fixed home loan to a 5/1 ARM--any of these are considered material changes and trigger a new GFE. The final GFE is the only one that counts.
Some Sneaky Mortgage Lenders
"Three Ways to Transform the New Good Faith Estimate into Your Secret Weapon," an article in a mortgage lending publication, recommends that loan agents not provide a GFE to those shopping for a mortgage. Instead, the author suggests that mortgage lenders put off borrowers until they are entitled by law to the disclosure--after they apply for a mortgage. He also advises that lenders skip filling out the voluntary parts of the form, because completing it will just "help clients shop them out of business." Finally, he suggests that loan officers not guarantee the interest rate beyond one day, claiming that "the smartest way to deal with Line 1 of the GFE is simply don't guarantee the interest rate." But you can insist that lenders provide the full GFE if they want your business. If the mortgage professional you're dealing with isn't confident his or her rates will stand up to comparison, go elsewhere.
Shopping for a Home Loan with the New GFE
To close your loan at the best mortgage rate, double-check your quote. Collect a few GFEs when getting mortgage quotes upfront, but check the numbers again when you lock your loan. Track mortgage interest rate trends online, and if you see market rates moving down but yours strangely increasing, have a serious talk with your loan agent and be willing to go elsewhere. When you get the final GFE, your lender is has made a full commitment--and there should be no surprises at your closing.