Home Financing – Five Tips for Deciphering Your Good Faith Estimate

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5 Tips for Deciphering Your Good Faith Estimate

Published: April 09, 2010 By: G. M. Filisko

Knowing how to read your good-faith estimate can help
you save money on your home loan.

When you’re shopping for a mortgage loan, it’s sometimes hard to understand the jargon lenders use in the good-faith estimate explaining the costs and fees you’ll pay when taking out a mortgage.

When you apply for a mortgage, the lender has three days to give you a good-faith estimate of the fees and interest rate you’ll pay, as well as other loan terms. Here are five tips for using the new three-page form to your advantage.[spacer height=”5″ mobile_hide=”true”]

1. Know Which Fees Can Increase and by How Much.

In the past, lenders provided an estimate of the costs involved in getting your home loan, and if those costs rose by the time you closed on your home, tough luck. The good-faith estimate shows some fees the lender can’t change, like the loan origination fee that you pay to get a certain interest rate (commonly called points) and transfer costs.

The form also lists the charges that can increase by up to 10%, like some title company fees and local government recording fees. The lender must cover any increase over that amount. Finally, the good-faith estimate lists the fees that can change without any limit, such as daily interest charges.

2. Look for Answers to Basic Loan Questions.

In the summary section, lenders explain your loan’s terms in simple language. Can your interest rate rise? If so, a lender must spell out how much the rate can jump and what your new payment would be if it does. Can the amount you owe the lender increase, even if you make your payments on time? If it can, a lender must show you the potential increase.

3. Evaluate the “Tradeoffs” on a Loan.

In the new “tradeoff table,” you can ask lenders to provide details on the tradeoffs you can make in choosing among home loans. If you’d like the same loan with lower settlement charges, how will the interest rate change? If you’d like a lower interest rate, how much will your settlement charges increase?

4. Compare Apples to Apples with the Shopping Chart.

Included on the good-faith estimate is space for you to list all the terms and fees for four different loans, so you can make side-by-side comparisons.

5. Know What’s Missing from the Good Faith Estimate.

The new form lacks some key information, such as how much you’ll reimburse the sellers for property taxes they’ve already paid on the home. It also doesn’t tell you the amount of money you’ll have to bring to the closing table. Some lenders have created supplemental forms providing that information. If yours hasn’t, ask for it.

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G.M. Filisko is an attorney and award-winning writer who has encountered many settlement statements that bore no resemblance to the lender’s good-faith estimate. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.


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By | 2017-10-09T17:08:42+00:00 March 14, 2013|Uncategorized|0 Comments

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