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 Both of those forms have been replaced by the Loan Estimate (LE).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 Are Disclosures?
Loan disclosures are a packet of papers that provide you with important information. Included is your three-page Good Faith Estimate (updated), Truth-in-Lending form, Rate Lock Confirmation that tells you what interest rate you’re locked in at or if you are not locked and still floating your rate, your credit scores, whether or not the lender sells your loan after closing, and other pertinent information. The purpose of the disclosures is to inform you about your financing. They are not a contract.
When Should You Receive Your Loan Disclosures?
You should receive your loan disclosures within three business days of giving your signed Purchase & Sale Agreement to your loan officer. As soon as you and a seller have a mutually signed contract, it is time to go full steam ahead with your loan processing. Your loan officer now has the address, closing date, and exact purchase price. This is the time for your disclosures to be prepared, and federal law states a lender must do so within 3 business days (whether or not your interest rate is locked.
You do not receive disclosures before you have a fully executed Purchase & Sale Agreement. There would be no point, because you don’t have an exact price or even a property before that time. What you ask for upfront is a Cost Estimate (the new name for the upfront Good Faith Estimate, due to the badly written Dodd-Frank law).
Signing Your Disclosures
Immediately upon receiving your paperwork, read through it and ask your loan officer about anything you don’t understand. It is your right and responsibility to understand your financing, and it is your loan officer’s job to explain it to you. Good loan officers love explaining loans, so don’t be reticent about asking. Then sign the paperwork and return to your loan officer asap–within a couple days. Don’t ignore them! Don’t leave them gathering dust for a week, because doing so could delay your loan processing and cause you to miss your closing date.
Loan disclosures are most often sent by email now. You print them out, sign and date, and return. If you cannot receive them by email and print them for signing, let your loan officer know so that he/she can mail them to you.
If–God forbid–your lender tries to sneak in additional lender fees that are above what was on your upfront Cost Estimate, do not sign any of the disclosures until this is corrected. Also, make sure the third party costs that are controlled by the lender are the same: appraisal fee, credit report fee, tax servicing fee, and flood certification. Just last week, one of my coaching clients noticed her disclosures had all fees increased from the initial cost estimate. This would have cost her an additional $350 had she not been aware. No bait-and-switch allowed!
When my client called the loan officer on it, he apologized and scurried to get her corrected disclosures. If he had not, she was prepared to walk away and go to a more ethical lender. If she had signed and returned the paperwork, she would have ended up paying more, because signing is acceptance of the terms. Once you sign, it is too late to negotiate.
Whatever you do, don’t neglect this important step in getting your mortgage–and don’t let your lender go weeks without providing you with this vital information: your loan disclosures.