Comparing home loans just got easier, thanks to the first industry-standardized good faith estimate, or GFE, that was rolled out by the U.S. Department of Housing and Urban Development in January. The new form more clearly details closing costs so homebuyers can shop mortgage loans with different lenders and compare the costs easily.After all, finding the lowest-cost home loan can be confusing. What's the difference between a lender processing fee and a document fee? What's a yield spread premium and how does it affect how much my mortgage costs?
"The problem in the past," says Brian Sullivan, a U.S. Department of Housing and Urban Development, or HUD, spokesman, "was that there was no standard good faith estimate." From loan originator to loan originator, each GFE looked different. That's why, as of Jan. 1, 2010, HUD developed a new standard GFE. "Now the consumer can match loan estimates, line-by-line to find similar fees and charges," says Dawn Davis, president of Rate One Inc., The Mortgage People in Memphis, Tenn.
For example, one loan originator may call a fee a processing fee; another may call that same fee an application fee. Same fee, different names. The new form standardizes that information. The new form also makes clear the terms of the loan. Is it a fixed rate or adjustable? Is there a prepayment penalty? Can your loan balance rise?
The new GFE could save you some money as well. HUD is estimating it will save borrowers an average $700 per loan, according to the report "Regulatory Impact Analysis and Initial Regulatory Flexibility Analysis." However, higher appraisal costs may make that figure lower.
"This new GFE will hold the loan originator's feet to the fire so consumers can be fully educated about which loan they're applying for," says Sullivan.
Here are some tips for using the new GFE to shop for a loan:
1. Compare apples to apples.First, understand rates change on a daily basis. "Shop lenders on the same day and even the same time," says Benjamin Clark, a broker with Homebuyer Representation in Salt Lake City. "Rates can change between Monday and Thursday. Tell them you need their best quote as of noon Eastern on a specific date."
The new GFE clearly specifies your interest rate, how many points you're paying for that rate and the terms of the loan. "Are you comparing a 30-year fixed loan with a 15-year fixed loan? If so, you're not comparing apples to apples," says Davis.