New Good Faith Estimate of Closing Costs

By
Mortgage and Lending with Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. LMB100023827. NMLS257576.

New Good Faith Estimate of Closing Costs

Sometimes the hardest part about having new forms is that, well, it's NEW! It's DIFFERENT! We have to create new scripts to EXPLAIN it so that our clients can UNDERSTAND it. But first... WE have to understand it.

So here are just a few points regarding the new Good Faith Estimate that I hope will help with that.

First, we have to recognize the old Good Faith Estimate was really an estimate focused on how much the BUYER needed to bring to closing and how much they would have to pay monthly.

Now, we have an estimate of closing costs related to the mortgage REGARDLESS of who pays! No credits offsetting, just a disclosure of the expenses. Let's do a simple down and dirty comparison of then vs now to help get my point across.

For the purpose of ease, we'll pretend we have an FHA loan with a sales price of $100,000.00. Here are the other details for my example:

  1. The buyer is putting minimum down of 3.5%, or $3,500.
  2. Buyer has put $1,000 earnest money down.
  3. We'll pretend the total closing costs and prepaids are about $4,000 and the seller is going to pay them.
  4. And of course, on an FHA loan we have upfront mortgage insurance of 1.75% off the base loan amount, or about $1,700, which is rolled into the loan.

The old Good Faith Estimate, which was created just for the buyer's information, the amount required for closing would show:

  1. Closing costs and prepaids being paid by seller, which would show the credit for the buyer.
  2. Mortgage insurance of $1,700 would be added to the mortgage, which would also be credited.
  3. Leaving basically the down payment of $3,500, less the earnest money deposit, or $2,500.00

With the new Good Faith Estimate, there are no credits reflected. It is merely a reflection of ALL costs associated with the transaction regardless of who is paying them. Bottom line is going to look like this:

  1. Closing costs of up to $4,000
  2. Mortgage insurance of $1,700
  3. Down payment of $3,500
  4. NO CREDITS, so bottom line will be a total of the above, or $9,200.00.

The buyer isn't paying any more or any less. It's simply an explanation of all costs that need to be taken into consideration on that transaction.

Will this leave the buyer confused? Yes, UNLESS we redirect our attention to the residential loan application, known as the 1003! That form does, in fact, give a total monthly payment AND breaks down what amount the buyer will need for closing. Let me show you specifically where to look.

Page 4, Section VII:

 

 

 

 

Notice the credits given for seller paid fees

Earnest Money 

 

 

and MIP financed

Leaving what the Buyer needs for closing

 

And while we're looking at the 1003, we can also see the estimated TOTAL monthly payment on Page 2 of the application, Section V:

So, just change your scripts!

  1. The GOOD FAITH ESTIMATE is a reflection of ALL costs regardless of who pays what.
  2. For the total monthly payment and cash required at closing, look at the Residential Loan Application, referred to as the 1003, Sections V and VII.

Remember, your first time homebuyers have never seen the old GFE, so they don't know the difference. Don't dwell on the change, just focus on new scripts to help your buyer best process the information disclosed in the formats we are required by law to use.

Posted by

Opinions expressed here are the sole responsibility of the author, and do not necessarily reflect the view of Fairway Independent Mortgage.

Ruth Vogt Colorado Mortgage Lender Ruth Vogt, Sales Manager

 #LMB100023827, NMLSR# 257576

 Equal Housing Opportunity. 

 Regulated by the Division of Real Estate.

   www.ColoradoHomeLender.com

   ruthv@fairwaymc.com  303-881-7849.

 

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Re-Blogged 9 times:

Re-Blogged By Re-Blogged At
  1. Roy Kelley 01/16/2010 05:26 AM
  2. 01/17/2010 12:00 AM
  3. Nancy Murray 01/17/2010 12:24 PM
  4. Terrie Leighton 01/18/2010 11:27 AM
  5. Broker Nick 01/18/2010 02:29 PM
  6. Jason Killam 01/18/2010 04:13 PM
  7. Christopher Webster 01/18/2010 05:26 PM
  8. Bill Buettner 01/19/2010 01:32 AM
  9. Monica Bourgeau 01/19/2010 01:41 AM
  10. Doug Patterson 01/20/2010 09:36 AM
  11. Barbara Bailey 02/11/2010 08:44 AM
Topic:
Mortgage / Finance
Location:
Colorado
Tags:
new good faith estimate
new gfe and hud

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Rainmaker
280,371
Tim Storm
Fairway Independent Mortgage Corporation - Irvine, CA
Orange County FHA and VA Home Loan Specialist

Now that was a greta, simple, explanation of of the GFE. I like you statement "first time homebuyers have never seen the old GFE". I need to keep that in mind.

Jan 19, 2010 03:02 AM #32
Rainer
85,729
Marianne Snygg
ERA Herman Group Real Estate - Monument, CO
ABR, ASP, GRI, SFR

Hi Ruth, great explaination! Thanks so much. And btw, congratulations on being featured! As long as I've been around here, I've never written anything that got me featured! Good for you!

Jan 19, 2010 04:04 AM #33
Rainmaker
656,917
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

First - THANK YOU!  I've been asking over and over again, why lenders are complaining as though they're no longer allowed to tell buyers the bottom line info all buyers want. Now, you've given the perfect answer.

But I also have a question about your illustrations.  The part where you're talking about total monthly payment, but then the clip is monthly income. Am I missing something, since no one else noted this?

Jan 19, 2010 05:33 AM #34
Ambassador
212,165
Jon Sigler
Keller Williams - Greater Hartford - South Windsor, CT
South Windsor Homes for Sale 860-306-8029

Ruth,  Your approach is perfect.  The change is here, we must march to the new tune.  Those who were not here before don't know what tune we used to sing.  Sure it isn't perfect, but it does answer the question, what is the loan going to cost.  Congratulations on being featured.

Jan 19, 2010 05:34 AM #35
Rainmaker
448,966
Ruth Vogt
Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. - Colorado Springs, CO
719-592-0855 Apply 24/7 www.ColoradoHomeLender.com

Gary, Glad you will be able to put the info to use.

Bill, good luck! We have had quite a struggle with the new HUD - not from our end, but getting the title companies to agree with us on "how to". I'm just glad we get our figures over to title on average of 6 days early. Otherwise, it would be a disaster!!!

Kevin and Monica, thanks for the repost!

Keith, glad the visuals helped!

Jan 19, 2010 05:57 AM #36
Rainmaker
152,098
Karen Rittenhouse
www.JKKPropertyInvestors.com - Greensboro, NC
Real Estate Investor

Love the part about "your first time homebuyers have never seen the old GFE".  So true!  They don't know the difference anyway, so lets not belabor the point. 

Eventually, we'll get used to the new forms.  But, beware, we'll be complaining when the inevitable happens and the forms get changed again!

Jan 19, 2010 07:15 AM #37
Anonymous
Dee Parrish (Coldwell Banker Triad, Realtors)

My company covered the new GFE in a recent sales meeting. This post answers a couple of my questions. Thanks for taking the time!  

Jan 19, 2010 08:20 AM #38
Rainmaker
448,966
Ruth Vogt
Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. - Colorado Springs, CO
719-592-0855 Apply 24/7 www.ColoradoHomeLender.com

Tim, it's confusing enough for our 1X HO's, isn't it?

Marianne,  I am quite pleased that you stopped by... and thanks for the congrats.

Joetta, The section showing the monthly payment is directly to the right of the monthly income. I've circled it in my illustration. (I appreciate your positive comments!)

Thanks, Jon, for the congrats. Appreciate that you checked out my post!

Jan 19, 2010 01:10 PM #39
Rainmaker
627,617
Mary Douglas
United Country Ponderosa Realty, Red Feather Lakes, Colorado - Red Feather Lakes, CO
REALTOR, Red Feather Lakes, Colorado

Hi Ruth, Together with the class I took today and this information, I think I've got it.  It will take some time to get used to the new HUD - but I will !  Thanks for the information here.  I always had to have the borrowers sign the 1003 at closing, will this be signed and seen before then?

Jan 19, 2010 01:12 PM #40
Rainmaker
448,966
Ruth Vogt
Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. - Colorado Springs, CO
719-592-0855 Apply 24/7 www.ColoradoHomeLender.com

Karen, how true! Ugh!

Dee, so glad I helped clear up even some of the confusion.

Jan 19, 2010 01:12 PM #41
Rainmaker
448,966
Ruth Vogt
Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. - Colorado Springs, CO
719-592-0855 Apply 24/7 www.ColoradoHomeLender.com

Mary, Borrowers are suppose to sign an intial application (1003) and a final application. So, yes, buyers should have the information provided to them right upfront at the time of application.

Jan 19, 2010 01:18 PM #42
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

There is a reason I stopped doing loans.  I suppose when you do it all the time it is second nature.

Jan 20, 2010 03:40 AM #43
Rainmaker
272,833
Carrie Sampron
Home Smart Realty Group - Highlands Ranch, CO
ABR SFR & Kathy Sampron (303) 931-3629 Highlands R

Ruth:  What a beautiful, simple explanation.  Thanks! Carrie

Jan 20, 2010 07:49 AM #44
Rainer
63,224
Doug Patterson
Park Place Real Estate, Broker-In-Charge - Winston-Salem, NC
CRS, ABR, Broker-In-Charge

Ruth,

Thank you for this great explanation of the new methods!  I'm going to "Re-Blog" this to refer some folks to...going forward. 

Best to you in 2010!

Jan 20, 2010 09:34 AM #45
Rainer
117,860
Beverly Femia
BlueCoast Realty Corporation - Hampstead, NC
Broker Realtor Stager - Greater Wilmington, NC Are

Your post makes a point no one else has made.  I wasn't seeing it that way.  Bet you are right about the HUD auditing. 

Jan 20, 2010 02:39 PM #46
Rainmaker
448,966
Ruth Vogt
Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. - Colorado Springs, CO
719-592-0855 Apply 24/7 www.ColoradoHomeLender.com

Gene, Probably a few more this legislation has pushed over the edge!  :)

Carrie, appreciate the compliment.

Doug, thanks for the reblog!

Beverly, That would be the only thing that might make sense.

Jan 20, 2010 02:58 PM #47
Rainmaker
234,380
Patricia Beck
RE/MAX Properties, Inc., GRI, CDPE - Colorado Springs, CO
Colorado Springs Realty

Thanks for highlighting some of the differences with the new GFE.  For buyers who never saw the old GFE, the new one seems to consolidate/simplify the information.  You're right, we can't dwell on the change!

Jan 21, 2010 06:45 AM #48
Rainmaker
448,966
Ruth Vogt
Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. - Colorado Springs, CO
719-592-0855 Apply 24/7 www.ColoradoHomeLender.com

What's that saying, Patricia? Lemons and lemonade???

Jan 21, 2010 02:50 PM #49
Rainmaker
107,841
Dana Devine
Charles Rutenberg Realty - Apollo Beach, FL

why why why  did they have toscrew with it...first timeers dont care what the total is  they just want to know what they have to bring in to closing and what is their monthly payment

NO CREDITS, so bottom line will be a total of the above, or $9,200.00.

that 9,200... will scare the crap out of first timers

Feb 08, 2010 02:18 AM #50
Rainmaker
448,966
Ruth Vogt
Fairway Independent Mortgage, LLS. Equal Housing Opportunity. Regulated by the Division of Real Estate. - Colorado Springs, CO
719-592-0855 Apply 24/7 www.ColoradoHomeLender.com

I understand what you are saying, Dana. My suggestion is that you make certain the loan officers you are working with focus on the actual application (called the 1003) as the information there is focused JUST ON THE BUYER, and will give their amount required for closing and their total estimated monthly payment. Much easier for the first timers to understand!

Mar 07, 2010 01:31 AM #51
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