Posts Tagged ‘Good Faith Estimate’

What is an APR and What did it do to my Rate?

March 10, 2011

After discussing some options and various programs with your Loan Officer you reach a plan that works for your situation.  You are satisfied with your interest rate and then you are handed that one piece of paper that shows in large, bold-faced type a number that is not what you recall discussing and the words, “Annual Percentage Rate” next to it.  Where did this number come from?  Did my interest rate change?  What will this do to my payment?

If you know nothing else about home loans and borrowing money, you understand that there is a cost associated with the money you are borrowing, specifically your interest rate.  However when presented with a new percentage and the words Annual Percentage Rate (or APR) next to it, you are left with more questions than answers.  Let us explain.

The interest rate is the cost percentage used to calculate your monthly payment.  However, there are other fees and charges associated with the set-up and origination of a loan.  The APR takes these fees and charges into account and provides the consumer with an effective rate (or total cost) of their loan expressed as a percentage.  The intent of the APR is for consumers to be able to compare competing lenders and various loan programs.

Lenders are required by law to disclose the APR to the borrower within 3 days of applying for a mortgage loan. In late 2008 further regulations were passed (effective in 2010) stating that if the APR changed by more than .125% from this initial disclosure on the Good Faith Estimate (GFE), the lender must re-disclose this information to borrower and wait another three business days before closing the loan.

The APR does not change your interest rate; rather it clarifies the true cost of your loan.  It generally includes points, origination fees, mortgage insurance and document prep fees.  It is not however, how your payments are calculated.  Your payments are still based on the interest rate you discussed with your loan officer.  We hope this helps.

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We’re Not Laughing – Okay Maybe We Are

March 9, 2010

Humor could be described as a spice of life that can lighten a mood, liven a moment or linger as a memory.  Sometimes it can bring a full-roar laugh, a simple smile or like now, a sigh of relief that the topic does not apply to you.  We recently read an anecdote on the recent RESPA changes and how some loan officers might be inclined to respond.  Allow us to share …

ARE  YOU HAVING TROUBLE EXPLAINING RESPA TO BORROWERS?

If RESPA changes are the final blow – swaying you to consider a simpler career path, say neurosurgery or something, you are not alone.

I have to vent for a minute, because I know you are with me on this one. Let’s see….

A new borrower comes to you because his Realtor told him that you are a fabulous loan officer and he needs to get pre-approved and get a Good Faith Estimate.

You look the new borrower square in the eye and have to say, “Wonderful! But I can’t give you a Good Faith Estimate because you haven’t identified a property. But I can give you this other “Non-Binding Settlement Estimate” form that my legal department has authorized, that has a 2-page disclaimer stating that you can’t hold me to any of these figures.”

So the new borrower, with a confused look on his face, takes your new form and goes back to his Realtor. The Realtor calls you trying to figure out what you said to the new borrower who now, doesn’t feel so confident about you or anything else in this transaction. You explain. The Realtor calms down.

The new borrower comes back with an identified property and says; “Now I want a Good Faith Estimate.” You prepare one, in perfect accordance with the new RESPA procedures and hand it to new borrower. He gasps. “This is $3,000 more than the previous estimate you gave!”

“Oh, don’t be alarmed,” you say in your most toddler-calming voice. “This isn’t what you are really going to be paying. This is just how I have to disclose it to you.”

The new borrower gives you a sideways suspicious glance, “But what about all the fees the seller is paying on my behalf? I can’t find a credit on this form for those.”

“Don’t worry…it will all work out at closing. This is how we protect you now. We give you inaccurate information all the way up until you actually close on the property. Isn’t that fun! Kind of like a surprise party!” you happily chime – beaming like an idiot while beads of sweat run down your torso.

The new borrower marches out to his car in tearful frustration and calls the next lender on his list.

Scalpel anyone?

This could not be farther from the truth for us at Awareness Home Funding.  The new Good Faith Estimate (GFE) is really a very simple document that helps you, the client, actually understand the real cost of acquiring your home loan.  It lets you know where you have choices in the services you will need, such as a home inspection.  It tells you what fees should not be changing by more than 10%.  And if they do, there will be a good reason, and time for you to understand what just happened before the loan process continues.  It also tells you what fees will not change at all.

So why don’t some loan officers like the new regulations and required forms?  Why can’t they explain the information it details for you?  Why can’t they provide the new GFE for you upfront?  Why such the cloak and dagger approach to helping their clients?  (Now this part, we do find really funny.)

Check us out (http://www.awarenesshomefunding.com/).  Give us a call (866-982-9273).  Let us help you understand the loan process.  That is why you go to a professional in the first place, isn’t it?

New Rules Mean Fair Play

January 5, 2010

Starting January 1, 2010 HUD implemented a new RESPA rule to standardize the GFE and HUD-1 issued to borrowers for the purpose of a home loan.  Now unless you have been researching this information, are in the process of securing a home loan or work in the industry, that last sentence was most likely read like a law student’s text book and made absolutely no sense.  So, let’s break this down.

HUD stands for the department of Housing and Urban Development, and is the government agency that oversees the Federal Housing Administration (FHA).  The FHA is the specific department that insures home loans made by private lenders.  HUD passed some new regulations regarding how borrowers are informed of the details of mortgage loans back in November of 2008 and some of these changes are now being fully implemented.  (Some things take time.)  These rules are part of RESPA.  RESPA stands for Real Estate Settlement Procedures Act, and is a federal law that helps protect consumers from unfair practices during the home-buying and loan process. (We are not the only ones looking out for you.)

As part of this new regulation some significant changes have been implemented to two documents that are used within the mortgage process – specifically the Good Faith Estimate (GFE) and the Settlement Statement (HUD-1).  The GFE is a form that is issued at the start of the loan process.  It discloses to the borrower their estimated costs for fees related to obtaining the mortgage for their home that will be paid prior to or at the time of closing.  The HUD-1 is a final listing of the closing costs for the mortgage transaction.  It lists the sales price, loan amount, individual charges and total settlement costs related to the transaction for both the buyer and seller (or for just the single party in the case of a refinance).

There were two goals with this change: 

  1. To standardize these two forms across all lenders to provide borrowers with an easier way of comparing loan offers.
  2. To help borrowers determine that the loan they are getting at close is the same loan they were offered in the GFE. 

Every lender will now use the exact same form, with the exact same terminology and show, at close where and why any changes were made between the start of the loan process and the end.  This is a very good thing! 

A borrower can now compare a loan program from any number of lenders and intelligently compare fees, interest rates and programs in order to make an informed decision on what loan will be best for them.  At Awareness Home Funding, our goal has always been to educate our clients and to treat them fairly.  Now you have a way to prove to yourself that what we have been saying all along is true!  Check us out and compare our fees to anyone else.  We think you’ll be glad you did.