How to Read a Good Faith Estimate of Closing
Costs: Pulling Out the Truth!
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There are two factors that drive most
mortgage decisions for borrowers: interest rate and closing
costs. We advise in our report "Why the Lowest Interest Rate
is Not Always the Best Deal" how to look at the complete
loan picture when making a decision on a loan product
because it is absolutely true that the best rate is not
always the best deal. On the other side, the lowest closing
cost quote also does not necessarily identify the best deal.
Why? Because not all mortgage brokers and loan officers
include all the costs related to closing a loan, and since a
large portion of those costs are just estimates in the
beginning, they often low-ball them, giving a false sense of
total cost to close a loan. In the end, you get surprised
with additional costs at a time when it's too late to walk
away from the deal.
We fight this battle every day. We believe
in setting our borrower's up for success, so we list every
single cost they'll encounter on their way to closing the
purchase transaction, and we try to provide some cushion to
make sure we plan for enough funds. The only surprise we
want, is needing less money to close, not more. But, our
competitors will many times provide much lower closing cost
numbers, and when we have an opportunity to review their
numbers, it's because they didn't include certain costs, or
they under estimated other costs.
Bottom line when reviewing a Good Faith
Estimate of Closing Costs, there are only a few lines that
you need to be concerned with when comparing one
lender/broker versus another. The rest are just estimates
and will vary from broker to broker, but in the end, those
other items will be the same cost no matter who you do your
loan with because those are third party costs out of our
control. Third parties involved are title companies,
insurance providers, government, etc.
A Good Faith Estimate usually has line
numbers, and it's the 800 series that represent the fees
associated with doing the loan, such as appraisal fees,
credit report fees, underwriting, processing, tax service,
flood certification, courier, wire transfer, broker fee,
origination fee, or discount points. These are the only
numbers you need to compare when shopping a loan, outside of
rate and monthly payment. Forget about all the other numbers
and never consider the bottom line number because it
includes those estimated items that do not relate to the
loan, such as estimated insurance, taxes, and escrows. If
you do this, you'll never be suckered into a deal. You'll
make your decisions based on the true costs of doing the
loan, not some low ball third party estimates. Really, the
only fee our brokers control is the mortgage broker fee. The
lender fixes their fees, so the rest of those 800 series
items are still basically third-party fees.
The Good Faith Estimate also should define
your rate and total monthly payment. Just as my other report
about interest rates states, the lowest rate isn't the best
deal if the lender sneaks in a large monthly mortgage
insurance premium to you payment. Look at total payment, and
compare that first. A higher rate with no mortgage insurance
can be a lower payment than a lower rate with mortgage
insurance.
Now that you know what to compare,
shopping for the best deal is a whole lot easier. We
honestly lose a lot of deals because other companies deceive
our borrowers by not including all estimated costs on the
Good Faith Estimate. The borrower goes with the lower total
number, but is always surprised at closing when they have to
come up with so much more money than expected. We'd rather
help you be prepared for reality, giving you an honest
assessment of all costs involved, even though they aren't
our costs, because that's the right thing to do.
We're happy to compare our Good Faith
Estimate with any other you've received to help you see the
best deal...whichever one that is.
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