Buying a home is one of the biggest commitments a person can make. Whether you are a first time homebuyer, or purchasing your dream beach house on the Outer Banks, there are so many areas where the uneducated can be taken advantage of.
The most important document to protect yourself as a buyer is the Good Faith Estimate from your lender. The GFE will provide all the important facts as well as outline any fees associated with the entire mortgage process. The smart buyer will also shop around between lenders obtaining multiple GFE’s and come up with the best arrangement for their own finances.
Here is a quick outline what information you should be looking for on your Good Faith Estimate to compare lenders.
Amount of Loan
This should not be a surprise to you, because it is what you are agreeing to borrow from the lender. If it is more than you agreed, the lender may be working in some of your closing costs into the amount you’re borrowing. If you do not have enough cash to pay for all of your fees this is a fine option, but just make sure you know all of the charges being added.
Interest Rate and Can it Change
Like the loan amount, the interest rate should be known to you as well through discussions with the lender. Where you can run into trouble is with whether the rate is static or if it can change. This basically means what type of mortgage loan you are getting.
If the interest rate is static then it is a fixed rate loan. If the rate can change, then it is an adjustable rate mortgage. Before the housing bubble burst, many people were receiving adjustable rate loans when they thought they were getting a fixed rate and couldn’t cover the costs once the percentage rate went up. The GFE will tell you the maximum rate you could be charged and when the first increase could occur.
This too should not be a surprise to borrowers as it should have been promised to you already. It should include principle, interest, and the monthly premium for mortgage insurance should you not have a 20% down payment. What it will not include is property taxes or homeowners insurance if those payments need to be made into an escrow account.
Here is where the real meat of the GFE begins. Being able to lay two different mortgage options side by side and compare fees gives the buyer a great advantage when trying to get the best deal possible. Those fees include:
- Application Fee: Charge for submitting the loan application
- Appraisal Fee: Charge for an independent appraisal of the home’s value
- Credit Report Fee: Cost of pulling your credit reports
- Attorney Fee: Cost of lender’s attorney preparing and reviewing all loan documents
- Survey Fee: Charge for determining official property lines
- Flood Certification Fee: If required, this cost covers a check if the property is in a flood zone
- Title Fee: Covers a search to determine if there are liens or claims against the property
- Escrow Fees: Prepaid amounts of homeowners insurance, mortgage insurance, and taxes
- Points: Percentage of the loan paid in advance to lower interest rate
- Interim Interest: Accrued interest from closing date through the end of the month
Keeping track of these items on your Good Faith Estimate will help you determine which lender is the best choice for your financial situation. Though the numbers can and do change a little, it will also allow you to make sure that the lender does not take advantage of you when you go to closing on the loan. Information is the borrower’s greatest asset and the GFE is the best way to deliver those details.
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