So you want to refinance your home mortgage. Whatever your reasons for doing so, there are parts of the process that can be confusing. And this confusion isn’t limited to first-time refinancers; even those who have refinanced before can be confused by new forms and regulations.
This confusion most likely occurred among homeowners at the beginning of 2010 when the new good faith estimate (GFE) form was mandated by the Department of Housing and Urban Development (HUD). The GFE is provided by the lender when you have expressed your desire for a formal loan application.
The new form was introduced in order to curb a common, yet unsavory practice by lenders, who would quote one value for closing costs on the GFE, but change that value drastically when the time came for the loan to be funded.
The new GFE form puts the onus on the lender to put limits on how much certain charges can change, as well as provide the homeowner with a new form if new information comes to light, such as a poor credit report.
So what does a GFE look like? Basically, it’s three pages aimed at helping you to understand various aspects of your loan, including:
- Your origination charge, i.e. the fees charged by your lender for taking out the loan;
- Type of loan and how it will behave over the course of your agreement;
- Other charges you may have to pay.
The first page lays out the terms of your loan, telling you things like the amount you will be borrowing and for how long, whether or not there’s a prepayment penalty or balloon payment, and how your payments will be made to your lender, among other items.
The second page of the GFE delves into what you will be charged, both for your chosen interest rate and admin fees, along with other fees. Care should be taken to ensure that you fully understand your options – some of the fees you see on this second page may be lessened by choosing another provider.
The third page contains a comparison chart, called a ‘tradeoff table’, which allows you to compare your options for charging and credit, and how your choice will impact your payments and rate. Unfortunately, not all lenders will fill out this table. However, you can find quote information from several mortgage lenders near you by going online to compare their rates.
Qualifying Your Would-Be Lender
Although no lender is required to guarantee their GFEs, they should at least be able to guarantee their lender fees. And there are questions that you can ask your lender to get more insight into what they are charging you. Knowing the answers to these questions can help you decide whether or not the lender you’ve chosen is the right one for you. But just as important as the answers to your questions will be how the lender responds to those questions.
If your lender can demonstrate patience when you ask them to explain each fee on the GFE, and can meet your every inquiry and negotiation with a straight answer, then chances are you’ve found a lender that will serve you over the long term.
Questions to Ask
Your lender should be able to explain the rate lock policy to you. This is important, as there may be a fee associated with locking. Ask your lender what the quote is based on; 15 days, 30 days or longer. The longer the number of days, the higher the chances that your interest rate or front-end fees will rise.
Should your loan officer tell you the rate is locked, ask for a written confirmation. An officer that is reluctant may be trying to make more money, as interest rates which don’t increase prior to the closing date benefits the loan officer. An increase in interest rates will put the onus on the borrower to pay.
Finding out whether your lender offers in-house underwriting is a good idea. Lenders with underwriters in their offices may be less likely to generate loan surprises and keep their loans moving quickly through underwriting.
There is nothing wrong with being persistent and diligent with your would-be lender. Think of it as their audition, and meet every reaction to your questions, along with the quality of their answers with a critical eye. The work you put into this part of the process will be worth it when you get a great refinance rate.
- Good faith estimate – HUD
Guest author Tony Caro writes on a variety of topics. He is a frequent contributor to the The Refi Guide, where consumers can find useful advice to improve the terms of their existing mortgage.