Good Faith Estimates are suppose to give you a very good indication of what it will cost you when applying for your mortgage. The new Good faith estimates, also known as GFE’s, went into effect on January 1st, 2010 and are less complicated than the old good faith estimates. In my opinion, the problem with the new good faith estimates is that they are misleading and don’t share enough pertinent information. I truly think that the government over-steps the boundaries when it comes to protecting the consumer. But let’s explore in detail.
The good faith estimate is comprised of 3 pages. The example below appears on page two.
As you can see, this part of the good faith estimate doesn’t break down the total costs, but lumps all the costs into the origination charges. You don’t know if you are paying points, lender fees, or anything else that could be part of this total charge.
Here is an example of a specific section from the ‘itemized fee worksheet“.
Here is a breakdown of any types of charges that you would get from the lender. These charges could be anything to include origination points, underwriting fees, doc prep fees, commitment fees, and so on. Each state is different in regards to what is allowed to be charge and on FHA loans, HUD has restrictions on what can be charged. This is not to say that FHA loans are more expensive, because that is a rumor. Or to say that there is a FHA good faith estimate compared to a conventional good faith estimate. The good faith estimate is universal, is the same for any mortgage program and should be the same from any lender, by law.
As you notice, the fees are broken down into different types of lender fees and then added back up as your origination charge. If you go back to the first example, you will see that the total number matches what is in Box A, which is the same as line 801 on the second example. The worst part about this whole process is that these same charges will be broken down again on your HUD-1 Settlement statement when you go to closing.
Another issue that I have with the new good faith estimate is that you don’t see your total monthly mortgage payment; to include the principal & interest, your property taxes, and homeowners insurance (depending on the type of property). One page one, it will show the total of your principal, interest, and if mortgage insurance is applicable.
Conclusion : The good faith estimate by law, is suppose to be given to the borrower by the loan officer or the lender within three business days after an application is taken. There is a set of items that need to take place that enforce what a true mortgage application is. There are a few problems with this though. When you do a mortgage application, you are shown the good faith estimate, but not always given a copy. It’s the borrower’s duty to ask for one, because not all loan officers will voluntarily give you one. Secondly, when you are actually shopping for a mortgage, you should be given some sort of break down that should resemble what the old good faith estimate looked like. Many of us call the new form the ‘itemized fee worksheet.’ This will allow you to compare all charges properly. It's not required that a lender give you the itemized fee worksheet, so ask for this when you get the good faith estimate. And I highly recommended that when shopping for a mortgage, that it’s all done on the same day. I have gone into details on how to shop for a mortgage.
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