Posted: January 14, 2010 By: Dave Ralston
The biggest change to the good faith estimate (GFE) since the 1970’s! The new disclosure format is effective starting January 1st 2010. The thinking behind the new format was to simplify the cost associated with a mortgage for the average consumer. It also ensures that the lender has the borrower’s and the property’s essential information in order to better predict the cost.
The bottom line is:
- No floating interest fees
- No last minute down payment charges
- Notifies your loan officer of any changes on the Purchase and Sale Contract
- It’s more important than ever to choose seasoned and experienced loan officers.
How does this change the home buying process for you? For starters, in order to get the GFE, you will need to have a signed purchase and sale agreement to give the lender. If that’s the case you can’t really shop a mortgage until you have already entered into the purchase process of a home. What I’m finding, is that a lot of lenders are creating a new step to the mortgage process. It looks like the old GFE, but it is called something different like a “cost analysis” or “mortgage cost list.” Common sense, it’s a necessary step to know what your budget is going to be before shopping for a home.
Now the really interesting point to mention about the new Good Faith Estimate is the protections built into it. The lender is only allowed up to a difference of 10% in the total cost estimate or else it comes out of the lenders pocket. The idea is that lenders will be encouraged to come as close as they can to the actual cost. At the same time they will not want to over insulate the estimated cost and chance another lender beating them out.
Warned to all, it’s going to be a rough ride! The new guidelines are left up to the lenders to interpret. I’ve already seen some sketchy GFE’s that were obviously incorrect and impossible to close. We are going to see a wave of problems while the industry works this out. The best advice I can recommend is to use a lender that has been in the industry for a while. Your friends, family, or real estate agent are your best resources for experience related referrals.
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I like that lenders’ estimates need to be fairly accurate to cost. You mentioned that there are some sketchy GFEs out there. Shouldn’t the 10% rule be enough to weed these out?
Also, what if I were to shop around based on cost analysis alone and the cost analysis is way off? How much more hassle would it be if I wanted out? What does it mean to have a signed purchase and sale?
I need a good lender!!!
Your right Denny, the new and improved GFE should protect the buyer from any sketchy practices. Fortunately these penalties should weed out the bad lenders. Hopefully not at the expense of you getting your perfect home.
As you shop around there is no commitment with the “cost analysis” at this point. You can walk away at any point and it just shows the details of the individual line items cost. The term “Purchase and Sale” is the contract used to buy real estate in Washington.