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Mortgage Shopping Gets a Little Easier

By: Shachi Bhardwaj Email By: Shachi Bhardwaj
November 2010
Mortgage Shopping Gets a Little Easier If you have shopped for a mortgage in the past, then you know how confusing the loan process can be. Loans come with a variety of fees, interest rates, and closing costs which makes it difficult for many consumers to compare rates. In the past, many people have been surprised to find that their closing costs that were quoted with a specific rate had changed substantially and if they wanted to go thru the closing, they had to come up with the extra cash or their loan was not going to get approved.

As of Jan 1, 2010, new federal rules adopted by the Department of Housing and Urban Development went into effect and are designed to protect the consumers. With the new rules, lenders who lowball fees and/or "surprise" buyers at the last minute with extra fees, will have to pay these fees instead of the consumer.

The new rules require lenders to provide borrowers with a standardized three-page Good Faith Estimate (GFE) within three days of an application. This good faith estimate allows for easy comparison of different mortgage options by standardizing the fees on the estimate.

The new form separates all fees and costs into three main categories:
1. Lender Fees
2. Third Party Fees
3. Pre-Paids and Escrow:

There are certain fees that cannot change from the Good Faith Estimate to the final Settlement (HUD) Statement. These include the loan origination fee, discount points, underwriting fees and transfer taxes. Additionally, mortgage brokers are required to disclose their commission on the good faith estimate. This is reflected as a credit to the borrower.

It is important to realize that the quoted third party fees can change up to 10% from the good faith estimate to the final Settlement (HUD) Statement: These 3rd party fees include appraisal fees, credit report, flood search fees, title services (attorney fees, title search, title insurance), and government recording fees.

There are also some other fees that can change from the good faith estimate to the final Settlement (HUD) Statement. These are typically prorated interest for the partial month and funds required for escrow (for taxes and insurance).

The good faith estimate also provides a summary of your loan terms, including the loan amount, term, interest rate, principal and interest, settlement charges, pre-payment penalties, if any, and whether your interest rate or monthly payment can change.

It may still be difficult to understand all of the components of the good faith estimate. It is recommended that you take the time to understand the various components of your mortgage, so that next time when you are at the closing table, you will find it much easier to compare the quoted fees to the actual charges. Your mortgage lender can help!

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