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Good faith estimate

Good faith estimate - An estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Be sure to question any loan agent who lists very few fees on the Good Faith Estimate. Some less than ethical loan agents will not show many fees on the initial Good Faith Estimate. Borrowers think they are getting a loan with very few fees only to be surprised when they see the final closing statement.

Certain fees listed on a Good Faith Estimate are used to calculate your Annual Percentage Rate(APR). These fees are added with the regular interest payments to come up with a total cost. This total is then converted to a percentage(APR) and is considered to be the true cost of borrowing money to purchase or refinance a home.

When you do compare Good Faith Estimates with other offers you have received it is important to compare items that the broker/lender has influence and control over. Line items 900 thru 1200 are often not known in fact until a title company has ordered title history on the property and all interest, insurance, and taxes are thoroughly researched. The loan officer will often attempt to get an estimate of these items generically, but the final itemization of these fees will differ at the closing table.

The lined items on the GFE have numbers corresponding to the items on the HUD1 Settlement Statements, which is completed by the closing agent at the settlement. A copy of the HUD1 and HUD1A are provided for both the buyer and the seller. The costs on the HUD-1 are actual costs, since the actual figures are now available, as oppose to the estimated costs on the Good Faith Estimate provided by the broker in the initial stage of the loan application.

The line item numbers on the good faith estimate should correspond woth with the item numbers on the Hud1 settlement statement you receive at closing.

Always be sure to get a copy of the good faith estimate before you proceed with the mortgage professional you have chosen.

Fees for some standard items, such as appraisal, credit report and title insurance should be almost the same at every lender. The same goes for payments to local governments, such as documentation stamps and recording fees.
A bank or mortgage company may be willing to drop some of the fees if you opt out of a service. For instance, they may overnight documents back and forth for faster approval. If you are not in a hurry, you can ask that the documents be sent by regular mail and the overnight charges be dropped.
Watch out for "junk fees" or additional charges. Most mortgage programs include them, but you should be able to negotiate them down or eliminate them.

Understanding good faith estimates

When you apply for a mortgage, the lender is required to give you a standard form called the good faith estimate of closing costs, the operative word being "estimate."

The good faith estimate is divided into sections of similar fees, each denoted by a range of numbers: the 800s, 900s, 1000s, 1100s, 1200s and 1300s. For comparison-shopping, the most important fees are the ones listed in the 800s. Most of these items are controlled by the lender or broker, so the estimates should be accurate. A few of the items in the 800 series are charged by third parties, and the lender shouldn't be far off in those estimates.
The lender or broker has direct control over origination and discount points and fees (801 and 802) and administrative, underwriting, processing, funding, document prep, wire transfer and other fees (810 and higher).

Third-party fees in the 800s include the appraisal, credit report, inspection, mortgage insurance application, assumption, tax service and flood certification. These fees are supposed to be passed along to you without markup. Some national mortgage lenders own subsidiaries that perform these functions, so they have a good handle on what the costs will be. You should expect smaller lenders and brokers to estimate these fees fairly accurately, even though they don't own subsidiaries that offer the services.

Fees in the 1300 series -- for surveys and pest inspections -- should be easy for lenders to estimate accurately, too.

The 900s and 1000s cover prepaid items -- mortgage, hazard and flood insurance premiums, mortgage interest and taxes that must be paid up front or deposited in an escrow account.

The 1100s comprise title charges: title insurance premiums, settlement or escrow fees, attorney and notary fees.

Items in the 1200 series consist of government charges such as city and county tax stamps and recording fees.

All the charges from the 900 series to the 1200 series are difficult to estimate. Some of the prepaid amounts vary depending on the date of closing: You would have to prepay a full month's interest if you closed on the first of the month, but not if you closed on the last day of the month.

The Good Faith Estimate is designed to give you the ability to shop and compare the fees of one loan to the fees of the next, so you can make an informed decision based on the cost of the loan.

The GFE by itself is not the best way to compare loan programs. You will need to look at the TIL or Truth in Lending to make a good comparison of the different loan programs you are looking into. The TIL calculates the true cost of your loan because it factors in other fees along with the interest rate.

Required by federal law, a Good Faith Estimate (GFE) is a written list of the estimated closing costs associated with a mortgage transaction, including the lender's charges along with the local closing agent's charges and fees. It also includes estimated amounts for real estate property tax and homeowner's insurance.

Mortgage Quote - Mortgage quotes can be deceptive. When shopping for a mortgage you may receive different rates from different lenders.

Rates change every day, sometimes during the day. The interest rate you qualify for depends on your credit score, the type of loan you want, loan to property value, and other factors. The best mortgage professionals always discuss needs and financial situation before quoting rates.

Rate quotes are constantly changing. Market Forces, Credit Scores, Loan to Value all have a material effect on the rate that you will be able to obtain. The loan officer needs all available information in order to provide a realistic quote.

Always get a good faith estimate with every rate quote.

Remember to look at your payments when asking for a quote. Rate is much less important than the total amount you pay per month for the amount of value the loan creates for you. For some people, that means the monthly savings from debt consolidation e.g. paying off their credit cards, for others that's the appreciation on home improvement, and if purchasing a new property the improvements in long term net worth and quality of life for you and your family.

A good loan originator will never quote a rate over the phone without first thoroughly interviewing the caller to ascertain his or her specific needs and qualifications. It is the loan originator's responsibility to explain the importance of being pre-qualified to a caller before considering rate. The lowest rate is irrelevant if you do not qualify or the loan program does not fit your particular needs.

A mortgage quote should only be used for a comparison between loan programs. The final rate lock will determine the rate you will receive. Receiving rate quotes without first submitting your entire loan package (income, employment, assets, credit) will only serve to give you a guide as to what the rates are on that day for the most qualified of borrowers. When reviewing rate quotes, pay close attention to the overal cost of the loan as well. Not all quotes are created equally.

When comparing different interest rates quoted by various lenders, it is more important to compare the annual percentage rates (APR). The APR takes into account not only the interest rate of the loan, but also all other lender fees associated with the loan. A mortgage with an interest rate of 0.25% lower does not necessarily mean it is the most inexpensive loan if it requires a huge discount point.

A quote is just a quote and not a commitment to lend.

When obtaining quotes from a mortgage broker get them to compare programs using a calculator or spread sheet, primarily one where you can plug in how many months you plan on staying in the property before refinance or selling, where you can see the programs side-by-side, you will be able to determine the higher rate with less closing costs will sometimes benefit you more. This is especially true if you plan on moving in a few years or refinancing soon. Moreover in this case it would be better for you to go with a Hybrid program where the rate is fixed for a certain period then adjusts after that period of time.

It is important that you provide your lender with accurate and up-to-date information when requesting a mortgage quote so as to ensure maximum accuracy. Keep in mind, it is nearly impossible to provide difinitive rate quotes unless the necessary income documentation and credit history have been furnished to your lender.

It is vitally important for the consumer to know that Loan Quotes are subject to change without notice, and may be better or worse than the advertised quotes depending on loan amount, lock-in period, loan-to-value ratio, and credit profile. Rates can change up or down several times in one day. Also keep in mind that rates and points will be higher for investment property.

The rate quotes will vary based on the amount of time that you will need the loan locked for. For example if you call for mortgage rates most will give you a rate that is only sufficient for 30 days which you must have your loan closed and/or funded by that date. You may need a longer lock in period for several reasons such as a purchase which may not close for a longer period of time or market conditions may prohibit you from closing in 30 days, all of which may affect your rate.

A mortgage quote consists of many different variables not just the interest rate. The type of loan program is just important because borrowers should plan for the future. Borrowers should look at all the costs associated with getting a loan. A borrower needs these three items when examining a mortgage quote.

The best thing to do if you simply want a rate quote is to provide the lender as much information as possible and have a good understanding of your credit history, be sure you understand that without a lock in agreement that is all you have is a quote.

Asking for an interest rate and fee quote is the first thing a potential borrower will ask. While these are very important questions they are not the most relevant to the beginning stages of mortgage financing. By example, if you knew of a auto mechanic that your brother or sister uses who is has been reliable, trained and experienced, and trustworthy, would you not first go to this mechanic, even if they were slightly more expensive? The old adage of, "you get what you paid for" may apply with mortgage financing also. If all that is considered in finding home financing is the rate and fees you run the risk of foregoing more important issues of getting a loan. Thus, the first thing a potential borrower should do is seek references. Find out what others have experienced about the lender and the individual in whom you seek potential business with. Paying for reliability, experience, and honesty is worth its weight in gold!

Understanding that a rate quote is nothing more than a snapshot of a particular programs interest rate is critical for a customer to understand. Many economic factors determine whether interest rates go up or down and lenders will update their rates daily or even multiple times per day. The decision to lock a loan should ultimately be the consumers however your mortgage broker can be extremely valuable in deciding if you should lock now or wait based on industry forcasts.

In most instances, the exact interest rate can not be determined in the first or second contact with the broker. Be sure to ask about any other programs avaliiable as well, often borrowers focus too much on rate and not which program is in their long-term financial goals.

Loan qoutes can also vary from day to day. It is a good idea to get qoutes within a 24 hour period.

Remember your rate is not guaranteed until your broker locks your loan. Your mortgage broker will be able to let you konw once the loan is locked and your rate is guaranteed.

Online mortgage quotes are immensely time saving in comparison to getting the quotes through other sources.

Rates once locked only remain so for a specified period of time after which they will once again float with the going market rates for your loan program, and may incur a fee under certain circumstances.

Many borrowers call lenders or search the internet for a rate quote when they are in the market for a mortgage. A borrower must understand however that, until they are approved by an underwriter for their loan and the loan is locked by the lender, the rate is never guaranteed.

Many borrowers become upset at loan officers who tell them that they cannot quote a guaranteed rate in the early going. The fact is that such a loan officer may be more honest and better to deal with than one who leads a borrower to beleive they are guaranteed to get a certain rate from the outset.

One thing to avoid are rates quoted in newspaper advertisements. Rates change daily and the rate that you see advertised may not be what the actual rate is.

Although I am frequently asked by borrowers "what will my interest rate be" when I am pre qualifying a loan I never will quote a rate. I will respond by saying one of the following:

1) Rate will be determined by the lender after they have pre qualified the loan by reviewing your credit and application.

2) Rates change daily. Since it takes at least 24 hours to get a completed pre qualification from the lender I could not possibly know what tomorrow's rates will be.

Always remember your rate can vary until locked.

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