| Many first time homebuyers focus in on the interest | | | | Good Faith Estimate for you. The lender will estimate |
| rate and the APR when shopping for a loan. While | | | | these charges based on what these items typically |
| these are indeed very important aspects of the loan, | | | | cost. The lender has no control over items in these |
| they may not even be the most important for a first | | | | sections so disregard comparing these when |
| time homebuyer. Comparing the Good Faith Estimate | | | | comparing lenders. However, do take note if one loan |
| provided by the lender can help a first time homebuyer | | | | officer has significantly lower fees in these sections |
| determine if they are really giving you a good deal or if | | | | than others do. Some lenders may try to trick you by |
| they are trying to taking you to the cleaners. This | | | | giving low figures for the third party fees so that their |
| article is about how a first time homebuyer can use | | | | higher lender fees on their Good Faith Estimate will |
| the Good Faith Estimate to compare lenders' costs, | | | | even out. Then when you have to pay extra money |
| but remember there is a huge difference between | | | | at closing, they tell you their numbers are just an |
| getting the best costs and getting the best loan. | | | | estimate, and your agent requested an expensive |
| Within three days after applying for a loan, by law the | | | | attorney. |
| lender must provide you in person or in the mail a | | | | Section 1200 includes all the government related taxes |
| completed Good Faith Estimate. This is a form that | | | | and recording fees. Again, these should be the same |
| represents an estimate of the fees and costs of | | | | regardless of the lender so there is no reason to use |
| necessary items to successfully process and close | | | | these as a comparison. However, if a particular loan |
| your mortgage loan. These items include origination | | | | officer is significantly wrong on these items, you may |
| fees, discount points and other fees. The Good Faith | | | | want to find out how experienced they really are. |
| Estimate is normally a legal sized form that is divided | | | | We skipped over section 800 until now because this is |
| into six different categories. These categories are | | | | the one that includes the items to really compare. |
| numbered 800, 900, 1000, 1100, 1200, and 1300. It will be | | | | These are the charges and fees that relate directly to |
| accompanied by a Truth in Lending statement that | | | | your particular lender. This is where a first time |
| gives you the APR on the loan as well. | | | | homebuyer should really focus and review items to |
| You should pay some attention to the Annual | | | | make comparisons. This section may include |
| Percentage Rate, but keep in mind that this is a figure | | | | administration fees, application fees, document |
| that is easily manipulated and makes some very bad | | | | preparation fees, funding fees, mortgage broker fees, |
| assumptions. APR assumes zero inflation and that the | | | | processing fees, underwriting fees, wire transfer fees |
| value or buying power of a Dollar today will be exactly | | | | and any other fees that a lender might be charging. |
| equal to the value of a Dollar even 30 years from | | | | These can be confusing for a first time homebuyer. |
| now. More significantly, the APR calculation assumes | | | | The key thing you must do here is simply ask why |
| that the mortgage will never be paid off early. This is | | | | each fee is there and get a reasonable explanation. A |
| completely unrealistic. Very few first time homebuyers | | | | competent loan officer will be able to explain these to |
| (or other borrowers for that matter) last longer than 5 | | | | a first time homebuyer and why each one is there. |
| years without refinancing or selling. So APR is a very | | | | Remember, it is vital that you look at the total package |
| poor method of comparing loans. When comparing | | | | and not just focus on the interest rate. Unfortunately, |
| Good Faith Estimates focus on the section that relates | | | | first time homebuyer loans can be complicated and |
| directly to the lender. | | | | have several moving parts. These can be altered to |
| Sections 900 through 1300 of the Good Faith estimate | | | | make one part look more attractive if necessary. A |
| are the where third party charges and fees are listed. | | | | lender can make any part of the loan attractive if they |
| The lender has only minimal control over these. | | | | feel that is what is really important to you. For |
| Sections 900 and 1000 are items required by the | | | | example, one lender may offer a $300,000 loan a half |
| lender to be paid in advance or deposited with the | | | | point lower but may have $3,000 in extra fees added |
| lender. This section is where you set up your accounts | | | | in the Good Faith Estimate. Because of the ridiculous |
| to pay the taxes, hazard insurance and mortgage | | | | assumptions required by law to be used to calculate |
| insurance and also where you pay your prepaid | | | | the APR, this loan may also have a lower annual |
| interest on the mortgage. Although it says 'required by | | | | percentage rate than a loan with lower fees and |
| the lender", these charges are specific to the loan | | | | higher interest rates! So as a first time homebuyer, be |
| program and not the lender. At closing, they will be the | | | | sure to spend some time talking over the good faith |
| same with every lender. | | | | estimate with your loan officer. Ask questions. |
| Section 1100 is where the charges from the closing | | | | Compare the entire package together to see which is |
| attorney or title company will be. These will be | | | | really the best deal. In that conversation, take the time |
| controlled by the closing agent and not the lender. Most | | | | to get a feeling for whether your loan officer has your |
| of the time, this closing attorney or title company will | | | | best interest at heart. A good loan officer, who |
| have been chosen by your real estate agent. You | | | | understands the needs of a first time homebuyer, will |
| may notice that these fees vary between lenders. | | | | take the time to put the numbers on that good faith |
| This is because the lender is the one that prepares the | | | | estimate and fit them into the total context of your life. |