The new Good Faith Estimate does NOT level the lender playing field
Minneapolis, MN: On January 1, 2010, HUD (Housing and Urban Development) mandated all mortgage lenders use a new three page "Good Faith Estimate" with the intent of eliminating low quote practices, to provide clarity to customers shopping for mortgage loans, and to make comparing lenders easier.
While the intent was admirable, many articles have been written disparaging the new Good Faith Estimate form, and the new rules that accompany it. Simply put, the new estimate was designed to help shop for mortgages. HUD envisioned the document to easily allow borrowers to compare competing lender interest rates and closing costs. HUD is quickly finding out that simply changing a form really hasn't done anything to help anyone. Rather, it has become even more confusing than it was before.
The two main complaints seem to revolve around the lack of giving a customer the bottom line of what they'll need for money out of pocket. The new estimate is designed to ONLY SHOW all closing costs, no matter who pays them. It does no bottom line calculations of down payment, earnest money, seller paid closing costs, or upfront fees that are normally rolled into the new loan (FHA MIP, and VA Funding fee for example).
The other main issue, is that borrowers are NOT helped at all by requirements that they essentially must complete a full application with each lender to learn how much the lender will charge for their services. Lenders are under no obligation to provide a Good Faith Estimate until seven mandatory application criteria items have been presented to the lender. This includes a full application, including social security numbers, and on purchase transaction, this includes the property address. Because the new estimate is binding in terms of costs, lenders are hesitant to provide a binding document until all the details are known.
Until all the mandatory seven items criteria is met, lenders have been providing clients all sorts of custom forms to give these borrowers an idea of what their bottom line costs might be. These custom forms are NOT the binding Good Faith Estimate, and even if all the estimate criteria is met and a Good Faith Estimate is given, the lenders STILL NEED to give the client some sort of custom disclosure form to show them their bottom line. Hard to compare lender-to-lender when the forms are all different!
SHOP EXPERT VS COSTS: While all these new rules and disclosures are an attempted step in the right direction, it still leaves a big hole in the process. The rules are designed to help shop costs, not mortgage experts. The largest financial transaction of the average persons life is too important to place in the hands of someone who simply has the lowest quote, but is not capable of advising you properly and troubleshooting the issues that may arise along the way. Getting a quote on the wrong product can cost a homeowners thousands of dollars, and just because someone refers a lender to you, or you have your checking account at the bank, does not mean you should use that lender. Be sure to get a second opinion.
UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. This means that you can have any interest rate that you want - but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all - but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goal.
UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing lender rates and fees - this is a moving target on an hourly basis. For example, if you have two lenders that you just can't decide between and want a quote from each - you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates
THE BOTTOM LINE: Stop shopping interest rates and closing costs and learn how to start shopping lenders. Once you find a good lender, you won't have to worry about the slight variations in quotes from lender to lender. You already know you'll be well taken care of.
As you can imagine, we wouldn't be encouraging you to shop around if we weren't pretty confident that we feel that we can give you a great value and serve you the very best. More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life but we do this every single day. It's your home and your future. It's our profession and our passion. We're ready to work for your best interest. Apply online with us for a top mortgage lender in Minnesota or Wisconsin experience, and thank you for giving us the opportunity.