People are confused about how to get an estimate for their mortgage. If you are getting pre-approved to buy a home or want to refinance, here is what you need to know about getting an upfront estimate.
GOOD FAITH ESTIMATE
This form was officially retired October 3, 2015. The Consumer Finance Protection Bureau (CFPB), the committee set up by the White House to oversee lending law, replaced it with the Loan Estimate. However, you cannot get an LE upfront, so please read below. To be perfectly clear, the GFE is dead and gone. No more GFEs allowed.
This simplified form is what you get only after making a full application. That means you provide the lender with these six items: (1) name, (2) social security number for pulling credit report, (3) property address, (4) sales price or estimated value of property, (5) loan amount, and (6) income.
As you can see, #2 will stop you if you aren’t ready to commit to a lender and have your credit report pulled. In addition, #3 will stop you if you’re still shopping for a home and don’t have an address. This is why you don’t ask for a loan estimate upfront. It comes later in the process.
COST ESTIMATE WORKSHEET OR FEES WORKSHEET
This is the new “upfront Good Faith Estimate.” This form will show you everything you need to see about your loan: interest rate, monthly payment, lender fees, and other closing costs. If you read Mortgage Rip-Offs and Money Savers or Homebuyers Beware, use the same shopping method in those books, except ask for a Cost Estimate rather than a GFE. It doesn’t matter what title is at the top of the page, so don’t worry if a lender has a variation.
If you have any questions about this, post a comment or send me an email.
I am licensed to do mortgage loans in California and Washington states. Please let me know if I can be of help to you.
Envoy Mortgage, a full service mortgage lender
Since the release of new lending laws, commonly called TRID, on October 3, 2015, there is no more GFE (Good Faith Estimate) or TIL (Truth in Lending). Both of those forms have been replaced by the Loan Estimate (LE). But, you cannot get a LE without first having the address of the property you want to buy. So how do you shop for a home loan at the pre-approval stage?
Here is a quick and easy summary of the three steps I recommend.
1) Call three lenders and ask for an Estimate Worksheet.
This is the new upfront GFE. Depending on the lender, they might call it an Initial Fees Worksheet, Fees Worksheet, or simply use an Excel spreadsheet. Either way, this form shows the interest rate, monthly payment, and fees so you can see the cost of the loan.
2) Speak with the loan officer, compare pricing, and choose your lender.
Notice that I did not say email the loan officer and make your choice. Don’t be lazy! This decision is too important for you to hide behind your screen. Pick up the phone and have a real conversation with the loan officer, because you need to get a sense of whether or not this person is honest, communicates well with you, will provide good service and updates throughout the loan process, and so on. You cannot get all that in an email.
3) Proceed with your pre-approval.
Now is the time to submit your income and asset documentation, photo ID, as well as other paperwork so you can get a good, solid pre-approval letter on company letterhead. You will need this in order to present an offer on a property. Give your pre-approval letter to your real estate agent.
That’s it! Now you are ready to meet with your Realtor and shop for homes.
After you have a mutually signed Purchase & Sale Agreement, ask your agent to send a copy to your loan officer. Now the time clock begins!
With a closing date in place and the PSA in hand, your loan officer will proceed with processing your loan. He or she will send you Loan Disclosures that include the Loan Estimate as well as other information required by TRID law. You will sign to acknowledge receipt and work with your loan officer through to closing.
If you happen to be buying a home in California or Washington, I would love to be your loan officer and mortgage advocate. I work for Envoy Mortgage, a full service mortgage lender. (We have our own money to lend as well as work with the wholesale division of other lenders such as Chase, Wells Fargo, Caliber, and others to get you the best deal.) My NMLS # 1284134. Envoy is a Fair Housing and Equal Opportunity Lender.
The Cost Estimate Worksheet or Initial Fees Worksheet is the form loan officers provide before they have taken a full application and pulled your credit report. What people are asking me now is, “Can I trust this estimate or will they increase their fees later?”
Great question, and I have an answer for you that will make sense.
The official 3-page Good Faith Estimate is a contractually binding document from the lender to you (per recent lending laws). The lender may not increase their lender fees by even one dollar from that GFE to the final Settlement Statement.
But the problem is, you cannot get that GFE without having your credit report pulled and submitting your financial documents. The new law ties the lender’s hands in that regard, because how can they commit a contract to you without verifying what you qualify for? So the worksheet serves as the upfront estimate now, due to this federal regulation.
This is no problem. The upfront worksheet is more specific than the GFE designed by the feds. I actually prefer it for comparing loans. However, it is not a contract, so can they increase fees later?
Yes, they could; but it would be a very stupid thing to do. And no, the good, honest, ethical loan officers would never do that!
The good, honest, ethical loan officers don’t lie to potential customers. They look out for your best interests and do all they can to help you get the best financing. They would never risk having you ditch them and file a complaint with the Consumer Financial Protection Bureau for committing bait-and-switch. Moreover, their personal moral compass would never allow that.
Even still, I have seen a minority of loan officers increase their fees between the initial worksheet and the GFE. (I see estimates from lenders all around the country from good folks using my coaching service.) There are usually red flags on the worksheet that raise suspicion.
For example, they leave off essential costs such as the appraisal report and property taxes. Then on the GFE when those are added in, they also show an increased origination fee. If that should happen to you, please send me an email and let me know. I will reply explaining what recourse you have.
Fortunately, most of the shady loan sharks are no longer in business. If your loan officer has a Mortgage Loan Officer License with a MLO #, it means he or she has completed the 20 hours of study plus additional hours of state-specific study, has passed an extensive background check including fingerprinting, and a credit check. Look for that number (or ask) and listen to your gut instinct or internal lie detector.
If you still feel uncertain, feel free to send me a question here. Your mortgage is important, and you should feel confident as you proceed with your loan.
True Story, June 2014. Mr. Borrower asks his lender for a Good Faith Estimate or a cost estimate for a purchase loan. He wants to borrow $320,000, has excellent credit, and 20% to put as a down payment.
The loan officer chats him up, asking a lot of questions about his situation, building rapport, and making Mr. Borrower feel comfortable. No problem so far. But read on.
Then the loan officer tells Mr. Borrower he will need six pieces of information in order to provide a Good Faith Estimate: the property address, the estimated value of the property, the desired loan amount, his name, his income, and his social security number (to run a credit report).
That’s a lot to provide just to see the price tag on the loan. The loan officer could have given Mr. Borrower a general cost estimate (which would contain all the desired numbers and information) without collecting the six pieces of data. But he didn’t, because by collecting W2s, tax returns, pay stubs, and running a credit report, it deepened the obligation of Mr. Borrower to the loan officer. Not my favorite practice, but still legal. The bad part is coming next.
The loan officer then said, “We need to get started right away, so let’s order the appraisal report. I will need your credit card to pay for that.”
Mr. Borrower was immediately charged $450 for an appraisal. ILLEGAL!
According to Federal law, it is illegal for a lender to collect money for any reason, including an appraisal fee or an application fee, without first providing a Good Faith Estimate. The only exception is the lender may collect a small fee (like less than $50) for a credit report.
Three week later, the Good Faith Estimate and other loan disclosures finally arrive in Mr. Borrower’s email inbox. And right there in black and white, it says the appraisal fee would be $385. But wait, he was already charged $450 weeks ago! Not only that, but the Origination fee was higher than the verbal quote the loan officer gave initially as well.
Four violations of the law committed by the lender:
1) Collecting money before providing the GFE.
2) Collecting more money for the appraisal than what was disclosed on the GFE.
3) Charging a higher origination fee than promised without any reason to justify the increase.
4) Failing to provide the GFE within 3 business days of collecting the six pieces of information.
Yes, there are still shady, illegal scams going on today.
After our consultation, Mr. Borrower is now filing a complaint against the lender with the Consumer Financial Protection Bureau. Hopefully, there will be a good ending to this sad and disturbing story. For everyone else, you can avoid being ripped off by knowing ahead of time what your rights are.
Do not give out your credit card info until after you have reviewed and accepted the Good Faith Estimate.
And if you want to see the price of a loan without having your credit report pulled, do not give out your social security number; instead, ask for a general cost estimate (which is more detailed than the new official GFE anyway).
If you have any questions, please let me know and I’ll be happy to answer.
Would you believe it if a loan officer told you “there’s really not much to compare” and therefore you should take her loan without first seeing an estimate?
That’s what happened to a home buyer named Nicole recently. She and her husband wanted to buy a house in the country, so she called a local lender and asked for an upfront cost estimate for a USDA loan.
Much to her surprise, the loan officer tried to dissuade her from looking at the price tag. The loan officer wanted her to proceed sight unseen — without seeing the lender fees, possible junk fees, appraisal cost, credit report fee, escrow closing fee, title insurance fee, recording fee, or interest rate and monthly payment.
“The lender doesn’t control the fees, so there’s not much to compare,” crooned the loan officer.
Wisely, Nicole sent me an email and asked, “Is this true?”
My answer was a big NO, it is not true. It is the home owner’s right and responsibility to look at the fees before deciding whether or not to make a full application, including getting the credit report pulled and sending in all your financial documents.
Never fall prey to a loan officer who refuses to disclose their fees upfront.
Ask for a cost estimate or estimate worksheet. This is the new upfront Good Faith Estimate, thanks to lending laws passed by federal government. What used to be a GFE is now called a cost estimate, initial fees worksheet, or estimate worksheet. It contains all the figures you need to compare loans and decide which lender offers the best pricing.
Never commit to a bank, direct lender, broker, or credit union without comparing two or three cost estimates first. No exceptions.
For more information on this topic, including the mortgage industry’s dirty little secrets on getting rich at your expense, please see Mortgage Rip-Offs and Money Savers. Find out what lenders don’t want you to know, how to shop and compare, what to say and how to say it. Save yourself stress, regret, and thousands of dollars on your home financing.
With lenders refusing to give out a Good Faith Estimate, how can you shop for a mortgage without submitting your W2s, tax returns, and social security number?
Easy. Call and ask for a cost estimate or fees worksheet. This is the new upfront GFE. They are happy to give you this without pulling your credit report, based on the verbal information you provide.
New lending laws say that the Good Faith Estimate is a contractually binding document. (Since when is an estimate a contract, right?) This has forced banks and mortgage lender to rename the upfront estimate. And here’s something that might surprise you…
I prefer the upfront cost estimate or initial fees worksheet over the new, convoluted, inefficient, three-page GFE designed by the Fed committee. So go ahead and use the same shopping method, including the scripts for what to say, in Mortgage Rip-Offs and Money Savers and inHomebuyers Beware–just substitute cost estimate for Good Faith Estimate.
Don’t Shop By Email
Notice that I recommend calling on the phone, not shopping by email. Why? Because it is important to listen to the loan officer’s response. Listen to the tone, to how he/she answers your questions. Listen for straightforward answers and for dancing around the topic. This will go a long way in determining if you are working with an honest, easy-to-communicate professional or a dishonest scammer. You cannot get that by email, so don’t be lazy when it comes to something this important.
Confused By the Worksheets?
As with the old GFE forms, the new worksheets come in different formats from different banks and lenders. They call their lender fees by various names, and they place them in various places throughout the forms. This makes it difficult to choose the best loan if you’re not an expert working in the business. This is where I can be of help.
I am not doing loans myself now, so I have no vested interest in any particular mortgage lender. I am truly an unbiased expert source. If you would like me to review your worksheets and/or GFEs, you can email them to me. I will check the interest rate, fees, missing information, bogus charges, etc. Then we will have a 20 to 30 minute telephone conversation. I will give you my opinion and answer all your questions so that you can proceed with confidence.
For details, please see the page at the top called Review My Estimate. I’ve saved folks many thousands of dollars and sleepless nights. It’s what I love to do.
I am not sure if I should ask for my Good Faith Estimate in the pre-approval process before finding the house to purchase or after the property is identified. I am about to make an offer. Can you clarify? ~ Chris
Yes Chris, here is the process you’ll want to follow for a smooth and secure mortgage experience:
1) Ask for a cost estimate or initial fees worksheet. This is the new upfront estimate that you can get without having your credit pulled or providing all your financial documentation.
2) Based on these estimate worksheets, choose your lender/loan officer.
3) Submit your financial documentation and have your credit checked by your chosen loan officer, so that you can obtain a solid pre-approval letter, in writing.
4) Go house shopping, with your pre-approval letter in hand, with your real estate agent. Your agent will need the letter when you submit an offer to buy a house.
5) After you’ve found a house and have a mutually signed purchase agreement, then you send that signed agreement to your loan officer, who will then adjust your loan amount, etc., accordingly and provide you with full loan disclosures. These loan disclosures include the 3-page Good Faith Estimate, Truth-in-Lending form, and other pertinent information about your loan.
If you need more personal help, please click on my webpage above that says, Review My Estimate.
Best wishes and happy house hunting!
Loan sharks are still in business, lurking inside of what are supposed to be reputable banks and mortgage lenders. These are the liars who bait you with an Initial Fees Worksheet or Cost Estimate that looks like a good loan. When doing your comparison shopping, they appear to be the cheapest and best. The icing on the cake is their personal charm; loan sharks are famous for being good communicators.
A home owner refinancing in Southern California asked me to review the three cost estimates she received. The one from a direct lender in San Diego appeared to be the best, so she proceeded with her refinance. But two days later when she received her official Good Faith Estimate, she saw that every one of the fees had been raised.
The lender underwriting and processing fee? Higher by about $400!
The appraiser fee? Higher!
The credit report fee? Higher!
The flood certification fee? Higher!
The tax service fee? Higher!
I advised her not to sign the paperwork until all the fees were corrected. The loan officer quickly apologized and blamed his loan processor. But guess what? The next day when he came out to her home to get the loan disclosure package signed, the fees on the new documents were still higher than initially disclosed. He mumbled some excuses and explanations and told her to sign.
She refused to be a victim of bait-and-switch and sent him packing. She then chose to go with a different, more honest lender.
This was the right choice. A one-time mistake can be fixed, but try to raise fees a second time, and it’s time to move on to a better loan officer. In this case, I don’t blame the lender, but the individual loan officer. He quoted fees that were lower than the company allowed, presumably thinking once he baited in the customer, she would stay no matter what.
A home buyer in Seattle last week had better luck. He also used my review and consultation service, because he didn’t want to spend the time and hassle of shopping around.
“I figured I would get one estimate and if it looked okay to me, get your expert opinion,” he said.
The initial estimate looked just fine. The interest rate was at the best available rate for the day and there were no unnecessary junk fees. The lender’s fee was competitive. I told him to proceed with confidence, and if he had any questions when he received his loan disclosures, to let me know.
The next day he emailed me his official Good Faith Estimate, and right away, I spotted a problem. The appraisal fee had been raised from $450 to $500. I pointed this out to him and suggested he ask the loan officer to correct it. Happily, the loan officer fixed the “error” right away, and all was good going forward. Using my service saved him $50 (he hadn’t noticed the increase) and gave him peace of mind.
If you’d like an expert opinion on your own loan offer, Initial Fees Worksheet, or Good Faith Estimate, please see here. One of my clients called me “The Mother Theresa of Mortgages.” Needless to say, I was flattered. It’s good people who are trying to get good loans that motivate me to do what I do.
A home buyer gets a new Good Faith Estimate right before closing that is almost $5,000 more expensive than the original GFE. He wants to know if this is legal, or if he’s getting ripped off. Here is his question with my answer.
Q: We are purchasing a new home. The builder gives us incentive to use their mortgage broker and lender. The broker gave us a good faith estimate before the start of building. This GFE said we would receive credit of about $2,000 to offset the $6,000 origination fee. Four months later, as the home nears completion, we locked in on a rate. For some reason, the broker then sends a new GFE. Pretty much the same as the old GFE, except the new GFE says we would only receive about $180 to offset the $6,000 origination fee. Is this legal? Thank you.
A: In my opinion, you are getting ripped-off. However, what your loan officer is doing is 100 percent legal. So yes, he can do that. I’ll explain why, and what you should do about this now.
The so-called credit is actually the YSP (Yield Spread Premium) the lender makes by selling your loan to the wholesale lender. Your loan officer is giving you the YSP as a credit to help pay for their (exorbitant) fees. The YSP is directly tied to the interest rate. When the interest rate goes down, there is a bigger YSP to credit to you. When the interest rate goes up, there is less YSP money to credit to you.
According to the two GFEs you received from your broker, the interest rate when up significantly in the past four months, and that’s why the credit decreased. But there’s something very wrong here.
First, why hasn’t your loan officer been keeping in touch with you about interest rates as your loan progresses? You don’t suddenly get a $2,000 surprise at the last minute! (Not with a good loan officer.)
Second, why didn’t your loan officer give you a choice between rate and credit? No one in their right mind locks in a rate with a net $5,000 fee. Surely, you did not approve that lock-in!?
The reason your loan officer sent you a new GFE is because the pricing changed so drastically, making it a legal requirement to give you a new GFE disclosure. But that GFE should not have been a surprise. There should have been a discussion and approval by you ahead of time. If not, then this loan officer is one of the types I warn people to avoid in my books.
I can tell you this: No one — and I mean NO ONE that is ethical or reasonable — is selling loans with a $5,000+ origination fee nowadays. And that is what this loan officer is trying to sell you now. That is a rip-off. It is not in your best interest to pay that kind of origination fee. A competitive origination fee would be in the $600 to $900 range, depending on your location.
You are in the driver’s seat here. You do not have to stand for this bait-and-switch, over-charge. You have options, and it is not too late.
First, you should tell your loan officer that you will not be paying more than $900 in total origination fees. You would like to know if he’d prefer to give you a new rate lock and GFE, or if he’d prefer to lose your business altogether, because you will move on to another lender if you don’t receive an acceptable GFE within the next 24 hours.
There are so many different good, ethical, honest lenders you could go with. There is no reason to pay an extra five grand. There are lenders that can close a purchase loan on a rush basis in three weeks, so you still have time if you act now.
What’s more, when you allow yourself to be ripped-off, you send a message to this loan officer that his tactics work and that he should keep on doing this to other home buyers. Only when we choose to stop accepting high priced loans will the high priced lenders either lower their prices or go out of business.
In your case, it appears that you are not receiving any kind of special deal by going to the builder’s pet broker. You are paying for it with that ridiculously high $5,000 origination fee. That is one of the common rip-offs I expose in my mortgage books.
By reading Homebuyers Beware or Mortgage Rip-Offs and Money Savers, you will know how to properly shop for a good, ethical loan officer. You will understand par rate and YSP. You will understand why to ask right up front, “What is par rate?” and “How long is the rate lock you quoted me?” You will communicate to the loan officer by how you speak that you are a savvy borrower who will not be scammed or ripped-off.
I got sick and tired of the lies, junk fees, over-charges, and rip-offs. And that is why I decided to stand up for the American home buyer by writing Mortgage Rip-Offs and Money Savers. Thanks to the American public, it has become the top mortgage book on Amazon — and that means a lot of good folks have become money savers.
“I was just pre-approved for my loan, and although I was assured that I would receive a GFE, when I got my paperwork, I don’t have one. Just the lender’s own loan summary form. Two managers told me they don’t give out GFEs until a rate is locked. Isn’t this against the law? This isn’t the only lender that has told me that they cannot provide a GFE without a rate lock,” wrote a savvy but frustrated lady who’s read my books.
Since a lot of folks are hitting up against this brick wall, I thought it best to answer the question for everyone at the same time.
The short answer is yes, it sounds like they are in violation of the law. I’ll explain.
Effective January 1, 2010, a Good Faith Estimate is required to be issued no later than three business days after the loan officer has received all of the following:
borrower’s full names
social security numbers to obtain a credit report
estimated value of the property
any other information deemed necessary by the loan originator to complete an application
Receipt of the above items are how Federal banking law (HUD) defines a loan application.
From HUD’s Real Estate Settlement Procedures Act (RSPA) FAQ 23:
An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information.
So we see that a loan officer can issue a Good Faith Estimate without the rate being locked; and in fact, is required to do so. A rate lock is not borrower information required for a credit decision, so there’s no loophole there.
What’s more, a loan officer must not require your signature before providing the Good Faith Estimate, because that might inhibit you from shopping, which you are fully entitled to. Here’s the quote fro the law.
HUD’s RESPA FAQ 31:
…a loan originator may not require a borrower to sign consents to verify employment, income or deposits as a condition of issuing a GFE as such a requirement may inhibit borrowers from shopping for the best loan by leading borrowers to believe that they are committed to obtaining a loan from that loan originator.
THE BOTTOM LINE
If you have provided all the information stated above to complete an application, your lender must either issue a Good Faith Estimate within three business days or deny your application. If they do not, they are violating RESPA. I suggest you refer them to this blog post with a friendly reminder that they probably don’t want to be reported to HUD (U.S. Dept. of Housing and Urban Development), the legal watchdog that is happy–if not eager–to “follow up” on lenders who violate the law.
ONE LAST COMMENT
Personally, I find the Loan Summary/Cost Estimate Worksheet/Initial Fees Worksheet (whatever your lender wants to call it) to be more revealing and more helpful than the new 3-page GFE that the Feds designed, because they show the breakdown of fees better and include more information (such as total monthly payment and cash to close) than the GFE does.