If you’re in the process of closing on a new mortgage loan to purchase your home or refinance an existing mortgage, you might find the paperwork provided confusing and misleading. You may have already received a copy of the Good Faith Estimate from your mortgage broker and are finding that the actual closing costs and fees are nowhere near what you were promised.
How can make sense of the actual charges associated with your new mortgage before closing and is too late to bail if the loan is not what you wanted?
Using the HUD-1 statement to reconcile what your broker promised on your Good Faith Estimate will give you an accurate picture of your loans actual fees and closing costs. Here are tips to help you make sense of this important mortgage document.
The Good Faith Estimate Is Not Reliable
Your Good Faith Estimate is just an estimate. The law requires that your get this document after submitting your application; however, it does not require that it accurately reflect the fees associated with any mortgage offer. After all the Good Faith Estimate is only an estimate and mortgage brokers frequently low ball closing costs and leave their markup of your mortgage rate off this document completely.
If your Good Faith Estimate is all but worthless, how can you effectively comparison shop? Should you rely on the Annual Percentage Rate (APR) like your bank would have you do when taking out a mortgage? The Good Faith Estimate may be bad for comparing loan offers but the annual percentage rate is worse. When it comes to comparing closing costs using Good Faith Estimates from several different mortgage companies and brokers will give you a good idea of the average costs for the area you live. Because many of the closing costs you encounter come from third party companies any broker that lists these charges much lower than the others can be easily identified as low-balling.
Despite its shortcomings the Good Faith Estimate is still the best way to compare loan offers, provided you reconcile it with the HUD-1 statement before closing. What should you look for on your Good Faith Estimate/HUD-1 before signing the loan contract? You already know that comparing estimates from several different brokers and mortgage companies will give you a good idea of what average closings costs are where you live, but what about broker markup and garbage fees? There are a number of charges invented by your mortgage company or broker that you need to be on the lookout for.
Mortgage Garbage Fees
Garbage fees come mostly from your mortgage company or broker. If you find anything on your Good Faith Estimate that resembles an application fee, processing fee, broker courier fee, rate lock fee, or broker rebate you’re looking at thousands of dollars in unnecessary junk fees. Here’s a rundown of these mortgage junk fees:
Rate Lock Fee This is a fee charged for supposedly “locking in your mortgage rate.” First of all, lenders do not charge a fee for locking. Period. If you find this fee listed on your Good Faith Estimate or HUD-1 Statement it has been completely fabricated by your mortgage broker and is destined for their pocket. Never agree to pay a fee for locking in your mortgage rate.
Loan Processing Fee Some mortgage brokers claim that they use “professional loan processors” to prepare your mortgage application before sending it to the underwriter at the lender, charging as much as $500 for this “service.” What does loan processing entail? Making copies, collecting signatures and Fedexing documents to the underwriter at the mortgage lender is not worth $500 of your money…don’t fall for this one.
Application Fee Another useless junk fee. You might have to pay for credit reports; however, don’t pay for an application fee on top of paying for your credit history. This is just nickel and diming your money away.
Broker Courier Fee This is another made up fee that will be going directly into your mortgage broker’s pocket.
Broker Rebate This is a big one. If you’re not already familiar with the broker rebate or Yield Spread Premium you will need to carefully read the next section of this article. Neglect this area of your mortgage and you will overpay thousands of dollars in unnecessary finance charges for the entire duration of your loan.
So What is Yield Spread Premium?
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