I am in the process of buying a house. I have gotten 4 GFEs so far - and there's wild differences between some amounts, and the terms used. Is there a definitive web site that can help me cut through the mush? Or - should I simply focus on interest rate, cash needed at closing and monthly payment?
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Mortgage questions - Good Faith Estimates
- Thread starter SuperSix
- Start date
Might be stuff you already know:
http://www.bankrate.com/financ...-faith-estimate-1.aspx
Ask about why their fees are so different and see if you can get some type of explanation.
I'd be wary of the of any companies offering what seems like a too good to be true deal. They adds fees somewhere.
http://www.bankrate.com/financ...-faith-estimate-1.aspx
Ask about why their fees are so different and see if you can get some type of explanation.
I'd be wary of the of any companies offering what seems like a too good to be true deal. They adds fees somewhere.
I believe Good Faith Estimates are not legally binding* in any way (I'd really view them as initial sales pitches), so surprises can crop up at closing if 1) you are not dealing with a reputable broker / lender, and 2) that person senses that you really have no idea what is going on and can dump tons of junk fees, etc. on you at the closing table, and you will sign without complaining because you think you have no choice, or you aren't even aware you may be getting ripped off badly.
I would recommend getting this book so you can talk to any brokers / lenders (respectfully, viewing them as a professional providing a service, not just a salesman, but also in the concise and correct terms that shows you understand the process - calling up and asking what the best rate they can offer with no details, for example) in a way that they know that you know exactly what is going on: http://www.amazon.com/Mortgage...&qid=1244074421&sr=8-1
Really dealing with people that, in your best estimation, are basically honest and ethical is of upmost importance, because the process and all that paperwork can be so confusing, even if you have studied before hand. (and if a Good Faith Estimate's rate seems too good to be true vs. all others you have got, realize that it could just be a sales pitch to get you to the signing table, where you may feel compelled to sign, despite some nasty surprises at closing table).
edit: http://books.google.com/books?...ult&ct=result&resnum=2 (link added 6/4/09)
I would recommend getting this book so you can talk to any brokers / lenders (respectfully, viewing them as a professional providing a service, not just a salesman, but also in the concise and correct terms that shows you understand the process - calling up and asking what the best rate they can offer with no details, for example) in a way that they know that you know exactly what is going on: http://www.amazon.com/Mortgage...&qid=1244074421&sr=8-1
Really dealing with people that, in your best estimation, are basically honest and ethical is of upmost importance, because the process and all that paperwork can be so confusing, even if you have studied before hand. (and if a Good Faith Estimate's rate seems too good to be true vs. all others you have got, realize that it could just be a sales pitch to get you to the signing table, where you may feel compelled to sign, despite some nasty surprises at closing table).
edit: http://books.google.com/books?...ult&ct=result&resnum=2 (link added 6/4/09)
GFEs can be changed at any time.
The only real things you need to worry about are
Origination
Discount
And any of the folling PITA or junk fees:
Application fee
Broker Admin Fee
The rest are fixed fees that cannot be controlled (title, escrow, wire, insurance, impounds, notary, appraisal, etc)
If you have a good agent, you should be getting your closing costs paid by the seller anyway. If that is the case, you should have no problem with the loan officer making some money.
The only real things you need to worry about are
Origination
Discount
And any of the folling PITA or junk fees:
Application fee
Broker Admin Fee
The rest are fixed fees that cannot be controlled (title, escrow, wire, insurance, impounds, notary, appraisal, etc)
If you have a good agent, you should be getting your closing costs paid by the seller anyway. If that is the case, you should have no problem with the loan officer making some money.
Thanks all.
Considering what I have studied, and what I have learned in this post, I am leaning towards one. I do understand that this is an estimate, and the numbers can change.
It's the company that gave me the pre-approval. They seem very honest, were referred by my agent (is that a bad thing?) and the communication and follow up has been great.
OCGuy - On his GFE, I don't see any of the fees you mentioned to look out for - the only ones I am wondering about, that are noted to be paid to him/te mortgage company:
Administrative Fee - $105.00
Processing Fee: $495.00
No points, no origination fee, no loan discount fee, 5.5%, etc.
Comments?
Considering what I have studied, and what I have learned in this post, I am leaning towards one. I do understand that this is an estimate, and the numbers can change.
It's the company that gave me the pre-approval. They seem very honest, were referred by my agent (is that a bad thing?) and the communication and follow up has been great.
OCGuy - On his GFE, I don't see any of the fees you mentioned to look out for - the only ones I am wondering about, that are noted to be paid to him/te mortgage company:
Administrative Fee - $105.00
Processing Fee: $495.00
No points, no origination fee, no loan discount fee, 5.5%, etc.
Comments?
alkemyst
No Lifer
If you don't really know what you are posting about, it's probably best not to post.
A GFE is an outline of what you can expect at closing...it's not going to be exact, but anything out of the ordinary would be an issue an attorney could use to sue. (of course cost/effort and the like come in to play).
A legitimate company is going to be upfront with the GFE, the last thing they want is to put you into a house that you are not going to pay for...this is why brokers are being pushed out...many top tier investors are no longer willing to buy their loans.
With financing you have to look at the whole picture. APR is what many focus on and could easily have them picking a lower APR and having a more expensive loan overall.
In this day you should be able to get a loan and only pay the real third party hard costs. Banks are desperate for good borrowers. That said, until THEY run your credit they cannot really quote you accurately. MyFICO and the like are not real scores when it comes to mortgages. As long as you are shopping only mortgages within a 30-60 day window additional inquiries should not blemish your score.
alkemyst
No Lifer
What about "Processing Fee", "Underwriting Fee", etc? There are tons of junk fees out there that are made to look like true hard costs. I would think someone in the business would have been able to give a more honest answer.
Also you paint a pretty good picture why loan brokers like yourself are getting kicked out of being accepted. The whole "look at all the money the seller will pay, give me a chunk of that" is par for the course with a broker. A lender is making it's money purely on rate today where a broker must get that vig to make it worth their while.
There are two things to look for when shopping for a mortgage.
RATE:
The interest rate is the yearly rate a lender charges for permitting the borrower to use money for a specific length of time. The rate is calculated by dividing the total amount of interest charged by the loan amount. For example, if a lender charges a customer $60 a year on a loan of $1000, then the interest rate would be (60/1000) x 100% = 6%.
APR:
The APR is a little more complex and is comprised of two factors: it includes your actual interest rate and any additional costs. Additional costs might include things like prepaid interest, private mortgage insurance or closing fees. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It is typically higher than your actual interest rate because it includes these additional items and assumes you will keep the loan to for the full term.
What you want to be comparing is the APR. A company can offer you a low rate by can offset that with a ton of bullpoop fees. APR is your friend.
RATE:
The interest rate is the yearly rate a lender charges for permitting the borrower to use money for a specific length of time. The rate is calculated by dividing the total amount of interest charged by the loan amount. For example, if a lender charges a customer $60 a year on a loan of $1000, then the interest rate would be (60/1000) x 100% = 6%.
APR:
The APR is a little more complex and is comprised of two factors: it includes your actual interest rate and any additional costs. Additional costs might include things like prepaid interest, private mortgage insurance or closing fees. Your APR represents the total cost of credit on a yearly basis after all charges are taken into consideration. It is typically higher than your actual interest rate because it includes these additional items and assumes you will keep the loan to for the full term.
What you want to be comparing is the APR. A company can offer you a low rate by can offset that with a ton of bullpoop fees. APR is your friend.
alkemyst
No Lifer
You have to see what those fee's consist of. If the Appraisal and credit report are wrapped into any of them (and not billed separately as well) then they may be acceptable, but a total of $600 sounds like just icing on the cake.
I have my GFE at home and it's about as lean as one can get.
I will post details later. Some of the items can't be done today as the programs have changed. I basically got back $10k or so at closing and applied it to insurance, a new door, some woodwork, etc.
&resnumhttp://books.google.com/books?...ult&ct=result=2
You could argue that if closing costs are included in mortgage rate, that you are financing those costs over time, rather than paying them up front. If seller is willing to either lower sales prices or pay closing costs (but not both), then you have to decide whether you have the spare cash around, and what the break even point is in terms of time for financing those costs (are you going to live in the house and have the mortgage for only several years only, then move, or are you planning on staying there for 10 - 20 years plus?)
I wouldn't get bogged down in what every item is. Like others said, divide them up into basically rate (simple rate, discount points, "APR" - though again I believe that number has some wiggle room in terms of how it is calculated so apples to apples comparisons might not really be truly accurate), escrow and pre-paid items, and closing costs* (all lumped together, irrespective how a particular broker or lender decides to label them).
Out of curiosity, is the $495 administrative fee payable at time of actual loan application and non-refundable? (not saying that is a bad thing because loan processing is work for lender's company). My sister paid such a fee and I don't think (though I am not sure) it showed up on HUD-1 settlement statement at actual closing (omission that can make closing cost look lower than they actually are if you just scan final document).
edit: * Make sure that certain obvious and very legitimate closing cost items (e. g. title insurance, appraisal fee, government fees,etc.) weren't "accidentally" left out to make total closing cost number look lower than competitors. If there isn't a 1% origination fee, I believe your rate may have been bumped up 0.25% vs. theoretical best you might qualify for based upon all your financial data and actual house transaction involved to pay for commission to lender (which is better is again going to depend upon how long you keep mortgage and if you have that free cash available and whether there are places to get higher rates of return on that money - e. g. long term investing in mutual funds or paying down very high interest rate credit card balance).
You could argue that if closing costs are included in mortgage rate, that you are financing those costs over time, rather than paying them up front. If seller is willing to either lower sales prices or pay closing costs (but not both), then you have to decide whether you have the spare cash around, and what the break even point is in terms of time for financing those costs (are you going to live in the house and have the mortgage for only several years only, then move, or are you planning on staying there for 10 - 20 years plus?)
I wouldn't get bogged down in what every item is. Like others said, divide them up into basically rate (simple rate, discount points, "APR" - though again I believe that number has some wiggle room in terms of how it is calculated so apples to apples comparisons might not really be truly accurate), escrow and pre-paid items, and closing costs* (all lumped together, irrespective how a particular broker or lender decides to label them).
Out of curiosity, is the $495 administrative fee payable at time of actual loan application and non-refundable? (not saying that is a bad thing because loan processing is work for lender's company). My sister paid such a fee and I don't think (though I am not sure) it showed up on HUD-1 settlement statement at actual closing (omission that can make closing cost look lower than they actually are if you just scan final document).
edit: * Make sure that certain obvious and very legitimate closing cost items (e. g. title insurance, appraisal fee, government fees,etc.) weren't "accidentally" left out to make total closing cost number look lower than competitors. If there isn't a 1% origination fee, I believe your rate may have been bumped up 0.25% vs. theoretical best you might qualify for based upon all your financial data and actual house transaction involved to pay for commission to lender (which is better is again going to depend upon how long you keep mortgage and if you have that free cash available and whether there are places to get higher rates of return on that money - e. g. long term investing in mutual funds or paying down very high interest rate credit card balance).
I'd suggest that you visit the HUD RESPA website. Here's a link to a FAQ page where you can get some info about GFEs. (You can also find some pretty decent info about GFEs and closings on the internet if you do a little searching)
In my experience having "wild differences" between some amounts isn't unusual as long as they're coming from different lenders. Some lenders may break down the fees, some may group them together, and others may waive some of the fees. The main thing you want to keep in mind is that the GFE generally contains estimates for items that the bank has no control over. For instance, your Attorney fees, inspections, insurance premiums, Title searches and insurance are all being charged by some entity that is not your lender and therefore it might be hard for them to give an accurate estimate. Your best bet is to research those fees that aren't coming from the lender and get your own estimate.
The things you want to pay attention to on the GFE are the various fees which do come from the bank (i.e. Appraisal fee, credit report, various loan fees) as well as any info about Escrows which may or may not be required. Obviously the interest rate is important, but their estimate for cash needed at closing is flawed to the extent that the individual items may not be accurate estimates.
I don't know what is involved in your transaction, but I usually estimate closing costs to be around $10,000 just to be safe, while a bank may estimate closer to 5,000. Frequently it works out to be more like $8,000.00 but part of the problem is you never know if something odd will come up requiring your Attorney to put in a few extra hours (at a few hundred $ per hour) or if you'll need to perform additional inspections due to underground oil tanks, termites, etc.. Also, the price of a Survey can vary depending on how fast you need it done and whether you want corner markers placed. Basically there is a lot of room for variation.
As a side note: I believe, and I may be mistaken, that the RESPA rules for GFEs are changing in the next year. My understanding is that there will be a new requirement that the GFE can't vary by more than a certain percentage.
Also, I think this should go without saying, but: I am not intending to provide you with any legal advice and any of the above should not be considered to be legal advice. You may want to speak to an Attorney in your state if you want to get better information about any of the above. Also my estimates are based on closings in NJ for real estate that is worth approximately $200,000-$800,000. Those numbers may not reflect closing costs where you live.
BoberFett
Lifer
Argue nothing, that's a simple fact. In the end, the ONLY thing a seller cares about is the number at the bottom of the net sheet. If the seller is willing take a smaller number, they don't care what you do with that extra money. Seller pays ARE a portion of the mortgage.
If OCGuy doesn't understand that, I question his competency.
I don't claim to be an expert when it comes to Real Estate transactions, but in my experience the Seller can be expected to pay Realty Transfer tax, Broker/Realtor Fees, their share of utilities (to date of closing), and occasionally other minor costs.
In instances where the Seller is asked to (or offers to) pay closing costs, it seems pretty obvious to me that the sale price is just going to be inflated a few thousand dollars to cover it. (Basically, it allows the buyer to finance the closing costs.)
Based on what I can tell from checking out some Attorney's web sites in other states (I am in NJ), it looks like common practice for Seller's to pay for Title Insurance. I have no idea if that's accurate or not, but again I think its pretty obvious that the cost ends up going into the sale price.
Also, even if you don't have someone pay your costs, you can get the equivalent value by negotiating the sale price down or getting a credit at the closing (this is frequently done if you have to have treatments for wood burrowing insects or if the inspection shows any unsavory conditions that the seller can't or won't fix)
As stated previously, this is not legal advice and if you want legal advice you should speak to an attorney in your state.
OP:
I am not in any way involved in the mortgage business, and I am not for or against mortgage brokers vs. mortgage lenders vs. banks. I learned about how to shop for mortgages two summers ago when my sister was shopping for a condo.
Some tidbits about mortgage rates that I learned along the way:
- historically speaking, 30 year fixed mortgage rates ran about 1.5% - 1.75% above the yield on the 10 year U. S. Treasury Note
- during credit crunch of last couple years, that spread widened greatly because risk and lack of liquidity in credit markets
- earlier this year (before stock market started taking off), I believe 30 year fixed mortgage rates were in a range of say between 4.75% - 5.25% (for very best borrowers)
- rates began trending up, but were being capped downwards by Fed buying up those mortgage securities (quantitative easing?)
- in last week or two (with stock market really popping), seems like rates have bumped up say about 0.5% despite Feds action
(above comments based upon what I read previously in Lou Barnes superb weekly column - you can usually read it for free sometime Friday afternoon or Saturday only, and on financial news tv)
More generally, in terms of "best" rate you could theoretically get, a more non-mainstream website (http://themortgageinsider.net/podcasts/) says 1% origination fee and "par" wholesale rate, with actual closing costs (no mark up on whatever they label various items) is about your best case scenario. You would probably have to work with an well established independent broker (1 man shop) who doesn't have a lot of overhead and good, well established ties with wholesale lenders. This is probably very unrealistic in the current market environment. It would also only apply to absolute best borrowers (say FICO over 740, fully documented, very conservative total debt to income ratios, and conservative mortgage with at least 20% down in local housing market where most of downside is perceived to have already taken place). (Website is informative in terms of spilling some mortgage industry secrets, but honestly don't think I myself would consider a loan from that particular broker, even if I were looking for a mortgage and in market he services).
For a lender or bank, there is obviously lots more overhead and people to share commissions with (plus shareholders who want ever increasing profits in terms of banks listed on stock market), so you can not realistically expect them to be able to match what a lean and mean 1 man independent mortgage broker with plenty of intact relations with wholesale lenders could have done in the past.
Don't know details of your particular transaction, but if that Good Faith Estimate was very recent (last week or so, maybe) and legitimate, that, very generally speaking, 5.5% interest rate seems really good, given that there is no origination fee or other closing costs, and you made no mention of downpayment. According to this, Florida is still a very glutted real estate market, so presumably there would also be additional risk premium built into your rate because of that.
My sister got a rate lock for a 1% fee (payable at time of application for rate lock, but credited against closing costs at actual signing). Don't know how your lender would deal with written rate lock, as there are no closing costs out of pocket to be credited again. (Rates fluctuate from day to day, and even intra-day, so your rate can legitimately change until you have formally locked in your rate with a written and signed rate lock agreement)
Hope this helps, and good luck in your purchase of a house!
Some perspective on "subprime" crisis:
7/06: http://realestateconsulting.co...tter=Local/local200706
3/08: http://realestateconsulting.co...tter=Local/local200803
1/09: http://realestateconsulting.co...tter=Local/local200901
5/09: http://realestateconsulting.co...tter=Local/local200905
I am not in any way involved in the mortgage business, and I am not for or against mortgage brokers vs. mortgage lenders vs. banks. I learned about how to shop for mortgages two summers ago when my sister was shopping for a condo.
Some tidbits about mortgage rates that I learned along the way:
- historically speaking, 30 year fixed mortgage rates ran about 1.5% - 1.75% above the yield on the 10 year U. S. Treasury Note
- during credit crunch of last couple years, that spread widened greatly because risk and lack of liquidity in credit markets
- earlier this year (before stock market started taking off), I believe 30 year fixed mortgage rates were in a range of say between 4.75% - 5.25% (for very best borrowers)
- rates began trending up, but were being capped downwards by Fed buying up those mortgage securities (quantitative easing?)
- in last week or two (with stock market really popping), seems like rates have bumped up say about 0.5% despite Feds action
(above comments based upon what I read previously in Lou Barnes superb weekly column - you can usually read it for free sometime Friday afternoon or Saturday only, and on financial news tv)
More generally, in terms of "best" rate you could theoretically get, a more non-mainstream website (http://themortgageinsider.net/podcasts/) says 1% origination fee and "par" wholesale rate, with actual closing costs (no mark up on whatever they label various items) is about your best case scenario. You would probably have to work with an well established independent broker (1 man shop) who doesn't have a lot of overhead and good, well established ties with wholesale lenders. This is probably very unrealistic in the current market environment. It would also only apply to absolute best borrowers (say FICO over 740, fully documented, very conservative total debt to income ratios, and conservative mortgage with at least 20% down in local housing market where most of downside is perceived to have already taken place). (Website is informative in terms of spilling some mortgage industry secrets, but honestly don't think I myself would consider a loan from that particular broker, even if I were looking for a mortgage and in market he services).
For a lender or bank, there is obviously lots more overhead and people to share commissions with (plus shareholders who want ever increasing profits in terms of banks listed on stock market), so you can not realistically expect them to be able to match what a lean and mean 1 man independent mortgage broker with plenty of intact relations with wholesale lenders could have done in the past.
Don't know details of your particular transaction, but if that Good Faith Estimate was very recent (last week or so, maybe) and legitimate, that, very generally speaking, 5.5% interest rate seems really good, given that there is no origination fee or other closing costs, and you made no mention of downpayment. According to this, Florida is still a very glutted real estate market, so presumably there would also be additional risk premium built into your rate because of that.
My sister got a rate lock for a 1% fee (payable at time of application for rate lock, but credited against closing costs at actual signing). Don't know how your lender would deal with written rate lock, as there are no closing costs out of pocket to be credited again. (Rates fluctuate from day to day, and even intra-day, so your rate can legitimately change until you have formally locked in your rate with a written and signed rate lock agreement)
Hope this helps, and good luck in your purchase of a house!
Some perspective on "subprime" crisis:
7/06: http://realestateconsulting.co...tter=Local/local200706
3/08: http://realestateconsulting.co...tter=Local/local200803
1/09: http://realestateconsulting.co...tter=Local/local200901
5/09: http://realestateconsulting.co...tter=Local/local200905
LOL! You obviously have no idea what you are talking about.
Processing fees and underwriting fees are "hard costs". Me being a processor, the processing fee on every file goes to me. If I do not get paid to do my job, you do not get a loan.
Also, the underwriting fee goes to pay for the u/w (which I get a piece of when I correspondant underwrite as well), and the costs of u/w. (AUS costs money, credit costs money, certifications cost money).
As far as going out of business, I think we are doing just fine.
A sneak peak into my loan drawer shows that I have more work than I can handle from 9-5.
Seriously, you are a customer service rep. Do ATOT an favor and stop pretending to be in the business. You give it a bad name.
alkemyst
No Lifer
I thought you said you were a broker, so now are you just working for one?
Processing fees are not hard costs for a lender, processors are on staff. As a major lender we know we have to do X amount of loans to make our costs up in a month. After that it's all profit. As such we do not charge processing or underwriting fees. We charge a credit report fee and whatever the appraisal costs us.
I have been in the business for 20 years now and I can say your recommendations work out really poorly for the guy getting the loan...it seems it's all about putting money in your pocket.
I am far from a customer service rep. Currently I am on the IT/IS side of things, I design their website and online portals...I handle the hardware infrastructure here as well.
In the past I worked in a secondary department preparing loans for sale and later travelled buying up BCD loans (bad loans) when we could pick them up for .10-.25 on the dollar.
As a major lender we make our money mostly on selling our loans to a third party investor with the incentive that they are getting the long term interest. Brokers don't have this luxury so they work with smaller lenders to get them business. In return they are allowed a certain grace to charge bullshit fees and then get a little commission on the deal.
Im an independant contractor that is housed at mainly one broker, but whose services are available to contract process as well.
None of what I have said would work out poorly for a borrower. I make a flat fee on every file. It does me no good to try and gouge a borrower.
If the LO makes $0 on the file, I still get $X If they make $10,000, I still get $X.
Just because your company ate processing fees, doesnt mean that is how the real world works. I have been a correspondant underwriter for multiple lenders, a processor for multiple brokers, and worked on the inside as a wholesale Account Executive. Never once have I been in a position to screw a borrower, as I do not make a penny on the loan amount or rebate.
BoberFett
Lifer
Broker fees and utilities and taxes prior to close are all standard. That has nothing to do with closing costs, simply what their cost is for selling their home and the cost for maintaining the home until they hand over the keys. Paying for closing costs indicates asking the seller to pay for what are typically cost to the buyer, such as loan origination, inspection fees, etc.
And you are exactly right.
BoberFett
Lifer
:roll:
I'm glad I didn't ask for closing costs, because my offer was on an high demand property with an owner who was not upside down and therefore didn't have to deal with a bank, and wanted to close quickly. If I had asked for closing costs, the buyer may have hesitated ever so slightly and then I might have ended up competing against the two offers that got faxed over the next day. Fortunately they liked my offer as it was and accepted immediately.
If you think every deal runs the same way, you suck.
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