Petaluma Mortgages and Real Estate: Michael G Regan- Petaluma Home Loans- Purchase and Refinance Mortgages (Mason-McDuffie Mortgage)

One of the first questions many prospective clients ask is to see a good faith estimate, the problem is most don’t know how to read it and determine what’s the best for them. 

You need to realize that a good faith estimate is an ESTIMATE.  It isn’t written in stone and is definitely not a promise.  Most importantly, a good faith estimate or GFE is NOT A COMMITMENT TO LEND MONEY.  In other words, just because loan officer X gives you a good faith estimate with a low rate, it doesn’t mean that they or the bank will deliver that rate. 

Another aspect to be cautious of is to look what loan program is being offered.  I’ve seen clients who want a 30-year fixed compare my GFE to a lender that offered them a 5-year adjustable rate mortgage.  Make sure you’re comparing apples to apples!

So how do you actually read a GFE?

GFE’s are broken up to into three major parts. 

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 is not important, but the sum total of those fees are.  When comparing GFE’s from multiple lenders, it’s important to note that the fees in this section are the only fees that can be compared.  The lender does not control the other sections listed below.

Section 900 & 1000, Prepaid Items:  This section contains items that the bank requires you to pay in advance.  The costs in this section normally consist of prepaid interest and tax/insurance escrows.  Some loan programs require a tax & insurance escrow account, others don’t.  The amount of money collected for tax & insurance depends on the month your loan closes.  Prepaid interest is the interest that accrues from the day you close until the end of the month.  Remember these are not controlled by the lender and are not fees!

Section 1100, Title Fees: the seller usually chooses the title and escrow company.  The lender does not control these fees and will be the same no matter what lender you choose.   

Section 1200, Government and Transfer Charges:  This is where any taxes or government fees will be listed.  Again, the lender does not control these.

What it comes down to: the lender only controls the fees in section 800, that’s it!  Many times, inexperienced or otherwise dishonest loan officers will conveniently “forget” or severely underestimate the other sections to make their good faith estimate look cheaper. They know most only focus on the bottom line; not realizing that section 800 is all that really matters.  

When comparing offers from two different banks, you should only compare lender fees (section 800).  All other fees will be same. 

I've been asked many times what the difference between a short sale and foreclosure is to someone's credit? 

Both severely impact the homeowners credit score for the worse.  With a short sale/deed in lieu of foreclosure the homeowner will not be able to secure a Fannie Mae or Freddie Mac backed home loan for 4 years, with a foreclosure that number jumps to 5 years.   Ginnie Mae (FHA) loans require a 3 year wait.  Over the past year these requirements have increased and it's possible they could again.  The bottom line is that if you short sell your house or let it go into foreclosure you'll have to wait at least 3 years before you'll be able to purchase a new home.