Can You Trust a Mortgage Cost Estimate?

SkepticThe 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.

When the Good Faith Estimate Doesn’t Match Your First Estimate or Initial Fees Worksheet

GFE3 HELP! My GFE doesn’t match the original estimate or fees worksheet that my loan officer gave me. What can I do?

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.

“Borrower Beware”

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.