Shopping for the Best Mortgage-Good Faith Estimate.

When shopping around for a good mortgage, a good faith estimate can be your best friend. That along with some basic understanding on timelines, you will be on your way to closing on a new home and feeling good about your loan.

What is a good faith estimate? A good faith estimate,  referred to as a GFE, is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.

A good faith estimate must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with the loan and must be provided within three business days of applying for a loan.

These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges.

It is important to remember that a  good faith estimate is only an estimate. The final closing costs may be different, however the difference can only be 10% of the third party fees. Once a good faith estimate is issued the lender/broker cannot change the fees in the origination box.

Because all good faith estimate must not follow a specific format, it is easy to compare loan rates. Before the law was changed in January 1, 2010, lenders were not uniform in their interpretations of what fees should be included on the GFE and where such fees should be disclosed.

Per federal law, lenders are now required to issue the GFE- If a lender does not provide a GFE within 3 business days of receiving a completed loan application, they are in violation of Section 5 of RESPA.  HUD provides the specific criteria for what constitutes a complete loan application:

• Borrower’s Name
• Borrower’s Monthly Income
• Borrower’s Social Security Number (To obtain a credit report)
• Property Address
• Estimate Value of the Property
• Loan Amount
• Anything Else the Lender Deems Necessary

Since lenders are now required to provide a standardized GFE with in a specific time frame, consumers have the chance  to compare lenders and their loan products. And because  HUD states that prior to the issuance of a GFE, lenders can only charge potential borrowers a fee to cover the expense of a credit report--the relative low cost of credit reports ($15 - $30), this allows for comparison shopping at a minimal cost.

TIP -Having your credit pulled multiple times over several weeks may indicate to credit bureaus that you are being repeatedly denied and your credit score may be negatively affected. To avoid this, keep mortgage shopping to 15 to 30 days of your first credit pull.

Keep in mind-

• Origination charges can vary widely from lender to lender, and can result in savings if you are willing to shop around.
• The new GFE does not state the sum of a borrower’s principal, interest, taxes and insurance, known as PITI. This is an important difference. In the past many GFEs provided the final PITI amount. You might still ask your lender to calculate this amount.
• Keep in mind that the GFE does not state the property purchase price, only the total loan amount. The GFE focuses on loans and was designed specifically to help borrowers compare lenders and other closing costs.
• The lender’s receipt of the entire loan application triggers the 3 business day period in which the lender is required to furnish the potential borrower with a GFE. Keep this in mind. It is a very good idea, to have all the documentation available to your lender during the prequalification period of the home purchase, before you write an offer. 

Act Quickly and Provide All Required Documentation.  Before searching for a new home, most buyers receive a pre-qualification letter from a lender. A pre-qualification letter states the amount a potential purchaser is likely able to borrow based upon information provided to the lender, including estimated home value, monthly income, and other factors. And while obtaining pre-qualification letters is common practice, the letters are in no way legally binding.

Once an offer to purchase is accepted, the contract generally stipulates a deadline for the purchaser to receive a mortgage commitment. The mortgage commitment states that the lender is willing to loan the purchaser a set amount of money by a specific expiration date. Prior to a lender issuing a mortgage commitment to any buyer (or homeowner hoping to refinance), the lender must receive a completed loan application. This means you must act quickly in order to comparison shop and stay within the guidelines of your executed offer  to purchase the home.

Get familiar with a Good Faith Estimate form. The table on page three provides a handy tool to compare lenders. You can access a pfd form for the Good Faith Estimate here.

Additional notes on fees-Each section in the new GFE is assigned a tolerance level for variation in fees. There are three different tolerance levels:

1. 0% Tolerance - If at the closing, any item in the “0% Tolerance” category is higher on the corresponding section of the HUD-1 compared to the original GFE, the lender is responsible to cover the difference. 

2. 10% Tolerance - Unlike the “0% Tolerance” category, these items are not compared individually to their corresponding section in the HUD-1. Instead, all items in the “10% Tolerance” are aggregated on the GFE and compared to the aggregated corresponding items on the HUD-1. In the event that the HUD-1 has a total more than 10% higher than the total on the GFE, the lender is responsible for any expense in excess of the 10% increase. This means that any one item in the 10% tolerance category can increase more than 10% from the GFE to the HUD-1 without a penalty to the lender, as long as the sum of all the items does not increase more than 10%. 

3. No Tolerance - A few sections of the new GFE fall into the “No Tolerance” section. These quotes can change with no penalty to the lender.

Fed to raise buy-back loan limit- Buyers of high-priced homes to be affected

Fannie Mae and Freddie Mac will soon cut the size of loans they buy from lenders. Starting Oct 1, 2011, Fannie Mae and Freddie Mac will lower their buy-back loan limit affecting buyers of higher-priced homes. Limits are expected to drop more sharply in some areas and less in others while forcing many future borrowers into more expensive and harder-to-get jumbo loans.

Those limits were raised in 2008 from  a general rate of  $417,000 for single-family homes to $729,750 in some areas in order to stimulate the economy. Next month, they will fall back to $625,500. The National Association of Home Builders estimates the changes will affect 2 percent of the nation’s homes, but more in certain areas like New York City’s where the market is expected to be affected at a greater rate. Some estimates are around 10 percent.

According to USA TODAY, many major lenders, including Wells Fargo and Bank of America, have stopped taking new applications for affected loans so that those in pipeline will close by the deadline.  Some lenders are “buried” given the rush to close deals before the changes and the mini-refinance boom driven by low rates.

How will this affect the luxury home buyers? With jumbos loans, borrowers could see a 4.5 percent interest rate go to about 5 percent. Down payments of 20 percent may become the norm. The federal move could have  some buyers considering less pricey homes.

Mortgage 101- Understanding Mortgage Loan Fees

A home loan often involves many fees, such as loan origination or underwriting fees, lender broker fees, and transaction, settlement, and closing costs. Every lender or mortgage broker should be able to give you an estimate of its fees. Find out which fees may be negotiable. I will not hurt to ask, especially if you have good credit. Some fees are never negotiable like state taxes such as documentary stamps of the note. 

Some fees are paid when you apply for a loan (such as application, appraisal fees, home inspections), and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. “No cost” loans are sometimes available, but they usually involve higher rates.

Ask what each fee includes. Sometimes items may be lumped into one fee. Don't be afraid to ask for an explanation of any fee you do not understand.

The following is a list of the typical charges. Each charge starts with a number – the same number is the number of the charge on a HUD-1 Real Estate Settlement Statement. This makes it easier to compare the charges a loan applicant receives on the good faith estimate to the HUD-1.


800 ITEMS PAYABLE IN CONNECTION WITH LOAN:


801 - Loan Origination Fee-This fee is a charge for originating or creating the loan  

802 - Loan Discount-This is an upfront charge paid to the lender to get a lower mortgage rate – the same as “buying the rate down”

803 - Appraisal Fee-This is the cost of the independent appraisal. It is usually paid by the buyer.

804 - Credit Report-This is the cost of the credit report

805 - Lender's Inspection Fee-This is the lender's cost of inspecting a property – some may double check the appraisal provided by an independent appraiser (not the same as a buyer's personal inspection related to contract contingencies).  

808 - Mortgage Broker Fee-This is the upfront charge that a mortgage broker charges. Brokers can also earn a “rebate” from the lender which is not listed here  

809 - Tax Related Service Fee-Lender fee, usually small, for handling tax related matters  

810 - Processing Fee-This is the charge for processing the loan – collecting the buyer's application, running credit, collecting pay stubs, bank statements, ordering appraisal, title, etc.  

811 - Underwriting Fee-This is the cost of the loan underwriter or loan approver  

812 - Wire Transfer Fee-This is the cost of wiring the money around, which is usually done by escrow.


900 ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE (prepaid costs)  

901 - Interest for days X $ per day-This is the prepaid interest for a mortgage loan.  

902 - Mortgage Insurance Premium-This is the prepaid mortgage insurance premium, if needed. This is the insurance premium some lenders charge for loans with little equity.  

903 - Hazard Insurance Premium-This is used to record hazard insurance premiums that must be paid at settlement in order to have immediate insurance on the property. It is not used for insurance reserves that will go into escrow.  

905 - VA Funding Fee-This is the Veterans Administration funding fee, and is only applicable for VA loans


1000 RESERVES DEPOSITED WITH LENDER 

1001 - Hazard Insurance Premiums # months @ $ per month This is any prepayment of future hazard insurance expense 

1002 - Mortgage Ins. Premium Reserves months @ $ per month-This is any prepayment of future mortgage insurance expense  

1003 - School Tax months @ $ per month-This is any prepayment of future school tax expense

1004 - Taxes and Assessment Reserves months @ $ per month-This is any prepayment of future tax expenses, such as property taxes  

1005 - Flood Insurance Reserves months @ $ per month months-This is any prepayment of future flood insurance expense

1008 - Aggregate Accounting Adjustment-This is a credit to the buyer. By law, the lender is not allowed to collect more than the sum of initial payments for reserve items. The aggregate adjustment is the amount the lender must 'credit' the borrower at closing, so that they don't collect more than the law allows.


1100 TITLE CHARGES

1101 - Closing or Escrow Fee-This is the cost of escrow. This is the service of a neutral party that actually handles the money between all the different parties in a real estate transaction, including: the lender, the buyer, the seller, the agents, notary, etc. This is often done by the “Title Company” – a related entity in the same office that provides title insurance. 

1105 - Document Preparation Fee-This is the charge for preparing the loan documents. Lenders often email the loan documents to the escrow company, which in turn prints them out and reviews them before signing. However, some title companies are owned by an attorney who will also draw certain legal documents for the buyer's closing.  

1106 - Notary Fees-This is the cost of the notary. This is to have all of the legal documents surrounding this transaction notarized. When closing inside the title company office, there is usually no charge for this.  

1107 - Attorney Fees-Any legal charges associated with clearing the title to the property.  

1108 - Title Insurance-This is the cost of insuring the title of the property. If there is a question about title (who really owned the property), or if a judgment or lien was really paid off, after the transaction is done then this insurance protects the lender and owner from future problems.


1200 GOVERNMENT RECORDING & TRANSFER CHARGES

1201 - Recording Fees-This is the cost of updating relevant government records  

1202 - City/County Tax/Stamps-Unavoidable government charge (death and taxes are unavoidable)

1203 - State Tax/Stamps-Unavoidable government charge

1204 - Electronic Recording Fee-Many counties now allow documents to be recorded electronically. This expedites the issuance of a title policy by several weeks.


1300 ADDITIONAL SETTLEMENT CHARGES

Anything 'extra' that is not included in the 800-1200 charges are itemized in the 1300 section. This includes things like the survey, HOA fees, and repairs.

1302 - Pest Inspection-This is the cost of the pest inspector. Their purpose is to document the state of the property that the lender is making the loan on.

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Lake Mary-Heathrow- 24 Month Real Estate Market Overview

How is the Lake Mary real estate market in Central Florida faring? A two year market overview shows that inventory is down and prices may be stabilizing in the 32746 zipcode , the area that includes Heathrow.

The following data extracted from the Mid-Florida MLS for the past 24 Months (report date Sept 3, 2011) .  The following graphs and chart provides a visual representation of what the real estate market has done in Lake Mary-Heathrow in the past 24 months. The blue columns display the number of active listings for each month. The graph lines show the absorption rate (in yellow) and the months' supply (in red) relative to the number of active listings.

	Active Listings
Month	Count	Median Price	DOM	Absorption		Months Supply
8/2009	608	$239,200	125	0	(0 %)	0
9/2009	588	$237,700	124	0	(0 %)	0
10/2009	571	$233,000	118	0	(0 %)	0
11/2009	536	$225,000	120	52.17	(9.73 %)	10.3
12/2009	515	$209,900	123	54.33	(10.55 %)	9.5
1/2010	533	$200,000	119	56.25	(10.55 %)	9.5
2/2010	563	$192,500	112	56.75	(10.08 %)	9.9
3/2010	582	$185,950	86	59.5	(10.22 %)	9.8
4/2010	596	$180,200	86	61.92	(10.39 %)	9.6
5/2010	579	$187,000	99	63.5	(10.97 %)	9.1
6/2010	587	$187,500	107	64.17	(10.93 %)	9.1
7/2010	568	$209,900	110	64.83	(11.41 %)	8.8
8/2010	556	$209,900	109	64.58	(11.62 %)	8.6
9/2010	564	$214,900	98	63.92	(11.33 %)	8.8
10/2010	530	$209,950	111	62.75	(11.84 %)	8.4
11/2010	531	$209,900	118	61.17	(11.52 %)	8.7
12/2010	513	$217,000	124	59.33	(11.57 %)	8.6
1/2011	489	$214,900	138	59.17	(12.1 %)	8.3
2/2011	484	$227,448	124	58.83	(12.16 %)	8.2
3/2011	500	$229,950	109	56.5	(11.3 %)	8.8
4/2011	477	$239,000	107	55.08	(11.55 %)	8.7
5/2011	484	$241,000	110	54.42	(11.24 %)	8.9
6/2011	442	$254,450	112	52.08	(11.78 %)	8.5
7/2011	403	$267,000	126	51.25	(12.72 %)	7.9

Notes:
DOM: Median Days On Market Months Supply: The number of months it would take to clear the market if no more houses were listed based on a 12-month rolling average of sales rates
Absorption: Average number of properties sold per month based on 12-month rolling average, both as count and percent of active supply

Source for the data is Mid-Florida MLS.