Good Faith Estimate attempts to decode the the mystery of the closing

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There is a map through the mortgage maze: It's called the Good Faith Estimate and it got a truthfulness makeover earlier this year, courtesy of the federal government.Mortgage lenders have provided their own versions of Good Faith Estimates – which are intended to provide a ballpark of closing costs — for years, but they were never standardized. And consumers have long complained that some lenders tortured the definition of “good faith” because the cost estimates they received at the beginning of the mortgage-application process bore little to no resemblance to the actual dollar amounts they found themselves with at the closing table.Early in 2010, the federal government mandated a specific three-page form, striving for plain English, that each mortgage borrower, by law, must receive within three days of making a loan application. The new form mandates that lenders disclose specific fees that cannot change while the loan is being processed; it also requires that lenders must estimate other costs within a 10 percent range.Three things to keep in mind about the new GFE if you're a homebuyer who's shopping for a loan:1. Things you should be sure of from the get-go: The type of loan and certain charges.“The form will clearly spell out what is this loan they are being presented, is it fixed-rate, is it adjustable, does it have a balloon payment, does it have a prepayment penalty?” explained Brian Sullivan, a spokesman for the Department of Housing and Urban Development. “These are really important characteristics of a loan.”In the fee department, lenders have to commit to certain charges, he said.“Some of the closing costs will not change between the time you get the GFE and the time you go to closing,” he said. “There is no latitude, no fee-inflation allowed.”Sullivan said those things include the loan originators' own fees or origination costs or points charged. Transfer taxes also shouldn't change, he said.2. But then there are categories of costs that can vary from the GFE figures.One of those categories includes services that can vary from the GFE by no more than 10 percent, such as title insurance or other required services if the mortgage lender selects them or if the borrower chooses providers who have been identified by the lender.Another category of services can change by any amount because the lender has no control over them – such as if the homeowner shops for his own title insurance, Sullivan said.3. The form also has a “shopping cart” that's intended to encourage borrowers to shop around, Sullivan said.A chart on the third page of the form permits making side-by-side comparisons of up to four lenders' charges for such things as interest rate, the “rate lock period,” etc. It also lets the loan shopper note whether a given loan has a balloon-payment feature, whether the rate can rise, etc.


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