One of the things experienced mortgage professionals hate to hear from consumers is the whole “send me a good faith estimate” stuff. Don’t get me wrong, I always provide a GFE to my clients. However, I have found most consumers have no clue how to actually read a GFE or know how to compare one against the other. So from my perspective, I view providing GFEs as basically shooting myself in the foot since I know my GFE is accurate vs that of many of my competitors which could be used as toilet paper.
As a consumer, you first need to realize that a good faith estimate is an ESTIMATE. It isn’t written in stone. It isn’t permanent. Most importantly, a GFE is NOT A COMMITMENT TO LEND MONEY. Let me repeat, a GOOD FAITH ESTIMATE IS NOT A COMMITMENT TO LEND MONEY. In other words, just because Joe Blow loan officer gives you a good faith estimate with an ultra low rate, it does not mean that he or the bank will actually deliver that rate. This is why you need to also need to be vetting the loan officer to ensure they are knowledgable.
So how do you actually read a GFE?
GFEs are broken up to into three major parts. Any good faith estimate you receive from a lender should be constructed as follows. If they cannot provide one in the following format, you need to find a different lender.
Section 800, Lender Fees: Any fees charged by the lender will appear in this section. The important thing to remember is that the name of the individual fees are not important, but the sum total of those fees. When comparing GFEs from two lenders, it is important to note that the fees in this section are the only fees that can be compared! All of the other sections listed below are not controlled by the lender, which is why accuracy is important!
Section 900 & 1000, Prepaid Items: This section contains items that the bank requires you to pay in advance. The cost in this section normally consist of prepaid interest and tax escrows. Prepaid interest is just interest from the day you close until the end of the month. Tax escrows is a number of months of taxes required to fund the escrow account. The amount collected depends on when taxes are due in your area. The tax escrows are the only other item that may differ from lender to lender. Some lenders may waive the escrow requirement (typically for a .25% fee that is built into the rate).
Section 1100, Title Fees: Title and escrow companies are usually chosen by the seller. So once again, the bank does not control these fees.
Section 1200, Government and Transfer Charges: This is where any taxes or government associated fees will be listed. Again, not controlled by the lender.
As I mentioned, the only fees that the bank really controls are the lender fees in section 800. Often times, inexperienced or unscrupulous loan officers will low ball the other sections to make their GFE look cheaper than the competition because they know most consumers only focus on the bottom line, not knowing that only section 800 really matters. For example, I have seen some lenders leave off the Chicago City Stamp with can easily add $2000 to a typical closing in Chicago. I might have lender fees of $500 bucks vs $1500 somewhere else. However, the other bank didn’t put the city stamp on the GFE so it looks like their overall closing figure is cheaper when in fact it is not.
When comparing offers from two different banks, you can only compare lender fees (section 800). All other fees will be same.
I pride myself on providing very accurate GFEs. I am rarely ever off more than $100 bucks which is great considering an estimating OTHER PEOPLE’s fees, not my own. Under no circumstances should lender fees change from when the GFE was issued. I have also learned to be ultra conservative and OVER ESTIMATE closing costs. It is a lot easier conversation to have with clients that thier closing costs are lower than originally estimated than the other way around!
Remember, the GFE is only as good as the person providing it. You should be looking for accuracy, not lowest cost.
I just found out about a item called YSP. It showed up on my GFE and I’m very concerned. When I ask the loan officer what that was he said oh..nothing. I read up on this item and when I calculated the figures it was in with my loan being financed. I thought that should be disclosed with what made up the APR. Why would the loan officer tell me oh nothing and its financed in with the loan?
YSP is yield spread premium and it’s one of the ways in which your broker gets paid for getting you the loan that you need. I’m surprised they replied with “oh it’s nothing.” There’s nothing wrong with YSP but there is something wrong with the broker basically blowing you off. In today’s world, you should demand total transparency from your broker since a shady broker does a disservice to all hardworking and honest brokers out there.
Ellington, you hit the nail on the head. YSP is nothing more than a fancy way to say profit margin. Most brokers will share it with you if you ask.
By law, mortgage brokers must disclose the YSP on the GFE and final settlement statement. However, banks do not have to disclose their Service Release Premium (SRP) which is pretty much the same exact thing.
Is SRP (Service Release Premium) the same as FHLMC Delivery Fee? We are being charged $560. on the GFE.
Is the YSP suppose to be listed 3 times on the good faith estimate? It was list 3 times on mine and all same amounts.
Hello this message is to whom it may concern. My name is Emmanuel Casillas with Accurate Resource Financial, in the modification department. I am hoping to receive the names,phone numbers, how many months behind and lenders of all home and commercial loans in your data base. We are using this information services or counseling to stop possible foreclosures. If possible in a microsoft excel format.
Thank you,
Emmanuel Casillas
Financial Solution Specialist
Accurate Resource Financial, LLC.
(773) 567-4174
Fax # (773) 378-0003
cordelcasillas@yahoo.com
good start
Hi, i have a concern when i am comparing with two quotes. I am first time buyer, and please help me!! First i have a quote from Bank of the west, but on the bottom its said “this is not a good faith estimate” she is telling me i have to purchase 0.75 point based on my credit score, With Origination fee $2202.95 for Interest rate 5.25% total closing about 6012 based on 224k loan.
then i applied to another “pentagon federal union”, now he is telling me since i have credit over 680 i dont need under writer to approve my loan, the good faith estimate will be email back to me tomorrow but Be aware on your GFE, there will be a 1% origination fee and 1.750 points (approx $3920) for Loan Level Pricing Adjustment from Fannie Mae. I have pre-approval on line with 5.016 APR from their web site.
So how should i really comparing to these two estimate? Please help, thank you