You have the legal right to see the price of a mortgage before providing any personal information or having your credit report pulled. Some shady loan officers are trying to get people to commit to them before providing a cost estimate — and that is ILLEGAL.
Recently, I heard from two different book readers in two different states about loan officers who tried pulling tricks. I share their stories with you so that you won’t fall prey.
Loan Officer Asks For Money Upfront — Illegal!
When the home buyer asked for a cost estimate (the Good Faith Estimate has been retired), the loan officer pressured her for her credit card information. He refused to take any of her criteria (loan amount desired, etc.) or let her make an application until she paid for an appraisal report with her credit card. “I want a commitment from you first,” he said.
This is illegal, and the home buyer is filing a complaint with the Consumer Finance Protection Bureau against this large national direct lender.
Loan Officer Sidesteps Questions with the Runaround
Another home buyer had a different kind of trouble when she asked for an upfront estimate.
The loan officer said, “How can I give you an estimate when we don’t have a specific house, specific loan amount, and I don’t know which lender I am going to choose?”
The home buyer then asked what the lender fees would be.
“I don’t know, because I don’t know which lender I will broker out to,” she (dishonestly) replied.
This unprofessional individual was recommended by the real estate agent. Here’s a valuable tip: do not choose your mortgage advocate by who the agent is friends with. You make your own choice.
First, the loan officer should give an estimate for the maximum home price the buyer may want. No address is needed at this point.
Second, the loan officer knows the lender fees and should provide the figures when asked.
What You Can Do
If you encounter this type of nonsense, walk away. Don’t reward a dishonest shark with your business. Loan officers are paid on commission, so when you walk away, it makes a big impact. There are plenty of good, ethical mortgage professionals who are state licensed and trustworthy.
You can also file a complaint with the CFPB. I would not advise filing against someone who gives you the runaround, but if a loan officer asks for any type of payment (including collecting your credit card info) before providing you with complete disclosures, that is a violation of federal lending law — and therefore, that person and the company they work for should face consequences.
No More Good Faith Estimate
The GFE has been replaced with a different form: Cost Estimate, Fees Worksheet, Cost Worksheet, whatever they want to call it. Ask for a Cost Estimate and an ethical, honest loan officer will provide you with the information you need on the form their company uses. We don’t care what title they put at the top of the page: the information you need about the loan is there. (Do not ask for the Loan Estimate. That comes later with your disclosure package after you have a purchase contract.)
No one would think of putting money down on a car without first seeing the price tag. The same applies to a mortgage. You have the right to see the terms of the loan before making a commitment.
If you would like my help, I am state licensed (NMLS 1284134) in California and Washington.
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.
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.
What is this? Is it a junk fee? Do I really have to pay that? These are questions people have been asking me.
Prepaid interest is not a fee. It is actually a partial mortgage payment. I will explain.
If you close your loan on June 15, then you will own your home from June 16 to June 30. For those 15 days of ownership, the lender does not send you a bill for a partial mortgage payment; instead, it is included in your closing costs.
If you close on June 30, you will have only one day of prepaid interest, because you will own your home for only one day in June.
If you close June 5, you will have 25 days of prepaid interest.
Prepaid interest is calculated to be exactly fair. You pay for the days you own your new home from the date of funding to the end of the month.
Before you have a contract on a house, the loan officer doesn’t know which day of the month you might close; therefore, most lenders will select 15 days of prepaid interest. The most conservative lenders will select 30 days of interest, ensuring that the cost will not go up. Some lenders, in an effort to make their estimate appear cheaper than their competitors, select one or two days of prepaid interest. In this case, you will most likely see a higher charge at closing, unless you truly close at the end of the month.
Which is the Best Day to Close?
The best day to close your loan is the day you want to take ownership of the new property. For many people who are renting, the best day for them to move out of their apartment or rental house is at the end of the month. However, some people want two weeks’ lead time so they can paint and clean. In that case, taking ownership in the middle of the month works better.
Be aware that the seller might put in a clause that says closing is June 15, but occupancy is June 20. This means you will own the house on June 15 and pay the prepaid interest from that day, but you cannot move in until June 20. You are giving the sellers five days to move out and you are paying for those days for them. If you don’t like that arrangement, speak with your Realtor about the closing date matching the occupancy date.
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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.
This is a good question and one that home buyers ask me. Here are two reasons why you might see a different origination fee on your official 3-page Good Faith Estimate.
Two Reasons Why Your GFE Might Be Different Than Your Fees Worksheet
1) Look to see if the loan officer split up the origination fee on several different lines in the upfront estimate. This often happens when the origination fee is high and not competitive with a fair market fee. I saw this again earlier this week when a home buyer used my consultation service.
On the upfront worksheet, there were four fees:
an origination fee,
an additional underwriting fee,
an additional processing fee,
and an IRS tax transcript fee.
These four fees were added together on the official GFE, because this form does not allow the loan officer to split up lender fees on different lines.
In this particular situation, the lender was charging $2,412 more than the national average origination fee, so I told the home buyer what steps to take.
2) If there is a legitimate “change in circumstances” (as the law says), then the lender has the right to increase their origination fee. A legal change in circumstances would be something like you told the loan officer you had excellent credit, but then when they pulled your credit report, they discovered that your credit was sub-par. Another legitimate change would be a change in loan programs, such as the need to switch from a conventional loan to a FHA loan.
A “change in circumstances” is not when the purchase price changed due to negotiations, but the loan-to-value ratio and loan program remain unchanged. If the price is higher or lower, but you are still putting 20% down, that does not constitute an excuse to raise the lender fees.
The new lending laws have not put all loan sharks or liars out of business. There are wolves in sheep’s clothing in every type of institution, including credit unions. Some home buyers think that if they go to their local credit union, they automatically get a good deal, but that is not true. I have posted in the past about credit unions pulling a bait-and-switch or overcharging.
Before you sign the loan disclosures, make sure you understand all the charges for your loan and agree to them. Once you sign, the lender is not going to negotiate, because your signature certifies your acceptance. However, your signature does not obligate you to the loan. That is important to know, because if you discover you are being over-charged, you are free to cancel and go elsewhere, if a satisfactory conclusion cannot be reached. (Always speak to your loan officer and try to work out a fair fee schedule before canceling. Respect your loan officer’s time and effort, but also respect yourself.)
I am available to review your cost estimate, initial fees worksheet, and/or Good Faith Estimate. Please see my Personal Coaching page for details, including the fee schedule.
Be smart, be informed, and then be confident with the terms of 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.
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.
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 in Homebuyers 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.
As always, thank you for reading my blog.
Mr. White, a renter, is buying a house from the Greens. The Greens are buying a house from the Blacks. Mr. and Mrs. Black cannot move out, because their loan is not closing due to the government shutdown. Because the Blacks’ loan isn’t closing, the Greens and Mr. White are also blocked from their home purchase transactions going through.
This is a true story, names changed. Because home buying is often a “domino effect,” the government shutdown is blocking more loan closings than it might appear on the surface. I’ll explain.
Lenders who sell their loans to Fannie Mae are required to verify the borrowers’ social security numbers and tax returns. The government agency that does the verifications is shut down. Some banks and mortgage companies are allowing their loans to close without the verification, with the stipulation that the verifications will be done as soon as the agency reopens. So even though the loans are closed, it still must be done. However, not all lenders want to take that chance.
If the verifications do not come back with satisfactory information, the lender must unfund the deal, which is a costly hassle. Lenders have their individual tolerance levels for taking such a risk.
In addition, the USDA loans (loans for certain neighborhoods with income limits) cannot close at all until the U.S. government reopens, so all those loans are in wait mode.
There is an even bigger financial domino effect on the economy when loans don’t close. The six real estate agents involved with the White, Green, and Black transactions are not receiving their commissions. The three loan officers do not receive their commissions. The three loan processors don’t receive their file bonuses. That is money they don’t have to spend on a celebratory dinner out, which affects the restaurant business.
Potentially, three moving companies lost income. New furniture and appliances will not be purchased. Pizza delivery for moving day is not happening. In turn, the people in the food and furniture industries do not have that income to spend on clothing and other things. On and on it goes with lost money to put into the economy. Experts say the U.S. economy has suffered by $2 billion so far due to the government shutdown, and the real estate industry is a part of that.
I don’t give political advice, but personally, I will not be voting for any incumbents at the next election. Let’s hope we get some good news from Washington D.C. soon.