What Everyone Needs to Know About the New Good Faith Estimate

Recent guidelines from Washington have forced a change to the way that loan originators will disclose closing costs for all borrowers. The purpose of the new Good Faith Estimate is to level the playing field for borrowers comparing loans to be able to make apples to apples comparisons for loan scenarios.

In essence, HUD is working to bring all lenders up to the same standard of excellence in reporting closing costs that good lenders have always adhered to, estimating realistic fees that a borrower should expect to pay at closing with no last minute surprises.

Below are some important points to know:

1. All fees paid to the lender/broker are to be consolidated in one line, including processing fees, origination fees, etc. These charges cannot change from the original estimate without a material change to the loan requested. A breakdown of this consolidation must be requested.
2. In the event fees are being charged to obtain a lower rate, these are to be broken out and itemized for the borrower's ease of comparison to other loan programs.
3. Estimates for fees from government recording charges and third party settlement providers we suggest are to be itemized and the lender is held to a tolerance of 10% for their accuracy. In the event the estimated charges exceed the amount listed by the allowable tolerance, the lender will be responsible for making up the difference.
4. Estimates for services that the buyer can shop for and do choose can change at settlement without the lender being held accountable. This can include title charges, homeowner's insurance, and initial deposits for an escrow account.
   
   
5. Seller’s contributions toward closing costs and escrows are not provided nor accounted for. These are considered charges to the buyers even if it is normal and customary for sellers to pay them, such as title insurance. A good lender will provide other documentation showing the effect of seller contributions.
   
   
6. Total cash to close is not shown. Again, a good lender will provide other documentation with this vital information.
   
   
7. A complete payment breakdown is not shown; only the principal+interest+mortgage insurance. Other components such as escrows for homeowner’s and flood insurance and property taxes are not added to show a total monthly payment. Good lender's clients will get this too.
   

If anyone you know is about to get a mortgage, please share this with them.