The Good Faith Estimate is a key document that mortgage loan originators will need to provide to borrowers. Therefore, assuming the perspective of borrowers should help mortgage loan originators best complete the form, providing information that borrowers will need and value. This change in hats guides mortgage loan originators in how to best complete the form. Below are 8 questions that the Good Faith Estimate should be able to answer for the borrower.
1) How much am I borrowing?
On the first page of the Good Faith Estimate form, is a section entitled “Your initial loan amount is”. This box should state the purchase price of your home, with an additional amount stemming from any closing costs not covered in cash by the borrower. However, confirm whether the charges are valid.
2) What’s my interest rate?
This is a straightforward question with a straightforward answer. Beneath the “Your initial loan amount is” section should be a “Your initial interest rate is” box. Here you should find the interest rate agreed upon by lender and borrower.
3) What’s my monthly payment?
Again, beneath the “Your initial interest rate is” section is a box which states your monthly payment. Take a moment and double check if it’s the correct amount that includes principal, interest and monthly premium payments (in cases where you’ve put less than 20% down), according to the terms of your loan.
4) Is this a fixed-rate or adjustable-rate loan?
This is an important detail many home buyers overlook—whether they have an adjustable-rate or a fixed rate mortgage. Hence the consequent surprise and anguish when home buyers see their payments rise. However, the Good Faith Estimate contains a box called “Can your interest rate rise?” This section will tell you whether you have an adjustable- or fixed rate loan.
5) Is an escrow account required?
If your lender collects your taxes and insurance premiums in order to pay on your behalf, and beneath the section “Escrow account information”, “Yes” is checked, then you’ll need an escrow account to add these costs to your monthly payment.
6) What’s the cost of taking out this mortgage?
Since mortgage loan originators are providing a service, they charge an origination fee for processing a loan. Luckily, this fee can found in the “Our Origination Charge” section at the top of the second page of the Good Faith Estimate. On average, these fees are in between the range of 0.5% and 2% of the loan.
7) Am I being charged points?
Discount points, that is, which are interest prepaid in exchange for a lower rate. The lender should discuss this with you before closing. The box entitled “Your credit or charge (points) for the specific interest rate chosen” contains all the information relevant to discount points.
8) How much am I paying for an appraisal?
Ironically, appraisals costs money. To determine how much your appraisal is, look up the section called “Required services that we select”. Here you’ll find how much your appraisal costs.
These questions will inform the home buyer and also guide the mortgage loan originator in how to interpret the Good Faith Estimate.