The Good Faith Estimate
Here, I wish to add a side-note about jargon: I throw it around throughout this book, and don’t be afraid to pick it up and use it yourself. I can assure you that your treatment will be based, in part, upon the loan ofﬁcer’s perception of your relative level of knowledge and experience. Compare the way the following two borrowers approach a lender:
Borrower 1.) Hello, this is Mr. Iggy Noramus. I was wondering if I could get some information about a home loan. I’m thinking about buying a house and this is the ﬁrst time for me. I really have no idea where to start. Can you help me out?
Borrower 2.) Hello, this is Dr. Moneybags. I’d like to get a quote on a $417,000 conforming, conventional, ﬁxed-rate mortgage with a fully amortized, ﬁfteen-year term. Give me the par rate with no more than a one-per-cent origination fee, and no pre-payment penalty. It will be a purchase transaction with twenty percent down. Please make sure the quote is on a HUD-1 and fax it to my ofﬁce.
Who do you think is more likely to end up with higher costs? Well, the truth is that either one could be taken advantage of if he fails to shop around and neglects to get his quotes in writing. However, all else being equal, an unscrupulous salesperson would consider Borrower One easy prey and be much more careful with Borrower Two.
Getting back to the GFE… The Real Estate Settlement Procedures Act (RESPA) requires mortgage companies to provide borrowers with a Truth-In-Lending disclosure, which includes a GFE, within three days of the date of application. However, no such requirement exists while you’re still shopping around; and good loan ofﬁcers customarily use this fact as their ﬁrst opportunity to get you to commit to them. You ask for a written cost estimate, and they respond by saying that the company requires borrowers to apply ﬁrst. Instead of meekly complying, or simply moving on to another lender, I want you to turn things around. Use this as your ﬁrst opportunity to test the honesty of the person with whom you may be dealing, and his willingness to commit to you. Now, I don’t want you to think that just because a loan ofﬁcer attempts to get you to commit at the outset, he is automatically preparing to take advantage of you. Any good salesman will have the goal of getting you to commit as foremost in his mind, and good salesmen are, quite often, the most experienced, i.e., the most capable of doing a good job for you. If you are asked to apply before a written quote will be given, I want you to respond that you’ll be happy to provide any information the loan ofﬁcer needs in order to prepare an accurate quote, but you’d like to shop around before making a commitment. His response will be telling: If he refuses, it’s a no-brainer, just move on to the next lender. This is just basic common sense, since a written quote will always have conditions such as a time frame within which it is good; disclaimer language that identiﬁes it as an estimate, rather than a commitment and requirements for veriﬁcation of income, credit, etc., that must be met before any commitment will be made. The conditions are what differentiates it from a binding contract. Therefore, written quotes can be veriﬁed for their veracity within their limits, and someone who will not put a quote in writing is literally saying that he can’t, or won’t stand by his word, i.e., he’s probably not telling the truth.
In addition to representing your ﬁrst opportunity to qualify the loan ofﬁcer, the GFE will be invaluable in making comparisons of costs. Unlike your own scribbled notes, or allegedly photographic memory, written estimates from various lenders can be lain side by side on your kitchen table and compared directly.
Know Your Fees - Who, How, What and What's Normal
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