This post is courtesy of Bill Ladewig, a mortgage broker who specializes in FHA, VA loans.
Buyers should educate themselves on the revised Good Faith Estimate (GFE) due to come into effect in January.
The revised GFE is another failed attempt to protect consumers, The problem is, consumers cannot be protected with forms because those who wish to deceive will always find a way. Consumer education is the only real consumer protection.
The new GFE requires lenders to guarantee their fees but it allows lenders to estimate fees for Title, Settlement, Prepaid Interest and Impounds. Once again, it appears the rules are made by people with absolutely no understanding of real world lending.
Based on my experience, consumers are less interested in the individual fees than the grand total. So, guess which fees will continue to be understated.
So, how can consumers be protected? The answer is only with a little education.
Rule #1 All rate shopping should be on the same day and within a couple of hours
Rule #2 is really simple but, for some reason most people don’t get it.
ANY RATE QUOTE IS WORTHLESS WITHOUT ALL 3 OF ITS PARTS:
The parts are:
- RATE… for equal comparison request a 30 day lock price.
It bares repeating, RATE… POINTS… FEES.
Lets put it to music:
1, 2, 3 umm papa Rateta da…Points tra la, Fees tra la
Like love and marriage, you can’t have one without the otherrrrr.
Ok, So I am not a song writer but it makes the point
Providing credit where credit is due; the revised GFE points out that total lender charges are a function of the interest rate. The relationship of points fees and rate is an important piece of information.
Note: Forget about APR because it is the most gamed number in lending and with Rate, Points and Fees it is not needed to compare rates from various lenders. APR is only as dependable as the lender.
Unless a closing date is known… PREPAID INTEREST MUST ALWAYS BE ESTIMATED AT LEAST 15 DAYS!!
Rule #4 requires a little help from Buyer’s Agents.
- Impound amounts vary by the month and locale so every real estate agent should provide their buyers with a local impound schedule.
- Title and settlement costs vary by locale and every real estate agent should have average fees for title and settlement to provide their buyers.
- Agents should make their buyers aware of any special state or local fees or taxes.
Note: Most title companies have schedules for impounds, title and settlement fees.
Education is the consumers best protection. Below are listed some educational articles on lending.