According to the Federal law, when borrowers apply for a home mortgage loan, the lender must provide them with a Good Faith Estimate (GFE) that contains a list of costs and fees associated with the loan. Borrowers should receive the GFE from lenders within three business days of their loan application.
A few details about the Good Faith Estimate
As mentioned earlier, it is a federal mandate to provide a GFE to borrowers at the beginning of the loan application process. For many years, Housing and Urban Development (HUD) managed the GFE. Later, the responsibility shifted to the Consumer Financial Protection Bureau (CFPB).
The GFE list has details of a loan and its information such as interest rate, lender fees payable upfront and also the third party fees. All the costs and fees are mentioned in an itemized form that gives a clear idea about the various costs borrowers need to bear during the mortgage process.
The GFE may help borrowers shop for the best deal. Even CFPB mentions in its question and answer section that the GFE can be helpful for borrowers to compare various lending offers. Considering this, the Good Faith Estimate should be a precious tool for borrowers to get the best deal. However, things don’t always happen exactly that way.
Other Important Factors other than the GFE
Besides the GFE, there are a couple of factors related to a home mortgage that borrowers need to know. One such factor is that lenders can’t determine a loan price until they get all the relevant information that affects the price. They get some of this information from the borrower’s loan application, and from other sources of information such as employers, credit bureaus, and appraisal companies.
Lenders need to have detailed information to determine the loan prices accurately, and the GFE is provided after borrowers submit their application. Even if borrowers get a few estimates by applying to various lenders, shopping a loan completely based on it may not be successful as price volatility is a common feature in the market. Thus, loan prices may change after receiving the estimates.
The GFEs that are used these days need lenders to specify how long the price mentioned on the GFE is valid. The common answer they give is that the price is good until the same day when the GFE is issued as they are likely to reset it the next day. Unless borrowers receive the estimate on the same day it is issued, they may not get the live price.
Key things to consider for Borrowing
As a borrower, your decision to choose a lender should not be based only on interest rates, fees and costs. There are various factors that indicate whether a lender is good enough to fulfill your expectations and desires related to your dream of buying a home.
Other things you need to look for:
- Check a lender’s rating and customer reviews.
- How a lending firm responds to your queries when you first contact them.
- How the lender guides you about various loan programs, and suggests the ones that suit your requirements.
- How structured the lender’s approach is to provide the right solution, if you have issues such as low credit score and outstanding debts. Providing customized solutions as per the borrowers’ need can say a lot about a lender.
It’s always better to do your homework before choosing a lender. Try to gather information about the lender as a customer-centric firm. Also, check newspapers, magazines and the web for positive reviews.