Thursday, October 18, 2007


If you've ever been through the home buying process before, you know that the Good Faith Estimate is one of the most important documents you will review to make a decision about your home financing. Oftentimes, you may request this document from multiple lenders and get completely different looking paperwork and figures. But in essence, there are only a few key factors you should focus on when comparing these documents.

One the these key factors to compare, bottom line, is the amount of closing costs you are being charged. I once had a customer who told me that he was quoted a 6% rate with no discount points and no origination fees. My good faith estimate also had a 6% rate, but I was charging a 1% discount fee charge. I asked to see his good faith estimate from the other lender. The other lender had inflated the closing costs to make up the money that would otherwise have been collected by a discount fee.

Clever, but not necessarily upfront. When it was all said and done, my total costs were cheaper by almost $400. What it boils down to is all secondary market lenders have access to basically the same rate. We just package it differently. By charging my customer the discount fee upfront, my customer earned the benefit of the tax deduction afforded this charge. So, lesson number one, if a quote is completely out of the ballpark from what someone else is quoting, there is probably a good explanation behind it. It's possible that they can really offer something out of the ordinary once in a while, but doubtful.

The other key factor to compare is the payment, but don't get caught up the escrow portion of the payment. Your escrows will be what they will be at closing. No lender has control over what you decide to pay for homeowner's insurance or what your county taxes are. Lenders simply guess at that figure. So, in general, you shouldn't focus too much on "pre-paids." They are what they are, and will be finalized when you get to the closing table. When looking at a payment, it is more important to compare the principal and interest and if applicable, mortgage insurance portions of the payment breakdown. As I said before, your escrows payments (taxes, insurance) will be finalized later.

You should never have to have your credit pulled before someone gives you a good faith estimate, nor should you pay for the estimate. Some lenders will require the aforementioned in hopes of "tying" you to them. The best advice is to find someone you like and trust when shopping for a mortgage. You want someone who will take care of the details and whom you can depend upon.

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