If you’re in the process of refinancing your home you might find the Good Faith Estimates provided by potential lenders confusing, even misleading. Truth in Lending Laws in the United States had good intentions; however, they are woefully inadequate when it comes to protecting your interests as a homeowner. Should you rely on the Good Faith Estimate when shopping for a mortgage loan or just use it to line your cat’s litter box? Here are several tips to help find the best deal when shopping for a home loan without paying junk fees or unnecessary markup of your mortgage rate.
How to Review Good Faith Estimate
The problem with the Good Faith Estimate (GFE) is that lenders use it as a marketing tool to sell overpriced loans by low-balling their fees. Remember your GFE is only a list of fees associated with a mortgage loan given in “Good Faith.” Lenders aren’t held accountable to anyone for the contents of their Good Faith Estimates. This makes it difficult for homeowners to shop for home loans when refinancing. So how do you shop for a loan when refinancing your home? Since you can’t rely on the Good Faith Estimate for mortgage shopping how to find the best mortgage rate for your next home loan?
Good Faith Estimate vs. HUD-1 Settlement Statement
We’ve already established that your Good Faith Estimate is worthless since it’s only an estimate given in “good faith,” but what about the HUD-1? Your HUD-1 Settlement Statement is the final word when it comes to the fees associated with refinancing your mortgage loan; however, the problem is you won’t get your hands on one till just prior to closing on the loan, making it not so great for comparison shopping. Think of the HUD-1 as a way to keep your mortgage broker honest. The problem is you can’t rely on the Good Faith Estimate for comparison shopping and you won’t get your hands on a HUD-1 until it’s too late in the process how do you shop for a mortgage loan when refinancing?
Shop for the Right Person to Arrange Your Home Loan
Instead of comparing numbers on every loan offer until you can’t see straight focus your energies on finding the right mortgage broker to arrange your next home loan. Mortgage brokers are the only kind of loan originator out there with access to wholesale mortgage rates that may actually be willing to share them with you. Banks don’t offer wholesale mortgage rates to their customers, your bank marks up their mortgage rates to make a profit when the loan is sold to investors on the secondary market. Most internet mortgage lenders run their businesses the same way and do not offer wholesale mortgage rates to their customers. If you want the best mortgage rates for your next home loan you’ll need to find a mortgage broker willing to arrange your home loan for a flat origination fee without marking up your mortgage rate for the “extra” commission paid by your lender for overcharging you.
Hidden Mortgage Broker Commission
Mortgage brokers are required to disclose their profit margin on your mortgage rate thanks to the Real Estate Settlement Procedures Act; however, they have clever ways of disguising their markup. This “extra” commission your mortgage broker receives from the lender refinancing your home is paid in addition to the loan origination fees you’ll pay for the broker’s part in arranging your home loan. This “extra” profit for your mortgage broker comes from marking up your mortgage rate, usually without your knowledge or consent. The commission paid for the markup of your mortgage rate is called Yield Spread Premium and can drive your monthly payment up by hundreds of dollars, unnecessarily. Banks and other loan originators like internet lenders for example take the same commission for inflating your mortgage rate; however, since these lenders fund mortgage loans themselves they are exempt from the Real Estate Settlement Procedures Act and don’t have to tell you anything about it.
Keeping Your Mortgage Broker Honest
Since your mortgage broker is not exempt from RESPA they are required to disclose any Yield Spread Premium on your loan on the HUD-1 statement. Once you’ve found the right mortgage broker to arrange your home loan when refinancing you can easily spot this unwanted commission in section 800 of this document. Remember you’re shopping for the right person to arrange your next home loan, not the “best” mortgage offer out there. You can start by telling potential mortgage brokers that you’re familiar with Yield Spread Premium and will pay them a reasonable origination fee for their services (one percent is fair and standard) and will not accept any home loan that includes markup of your mortgage rate. Once you’ve found the right mortgage broker for the job I’ll show you how to recognize and avoid lender junk fees, which will save you thousands of dollars at closing, with my free Underground Mortgage Videos.
You can learn more about refinancing your home loan without paying lender junk fees or the unnecessary markup of your mortgage rate and save thousands of dollars by checking out my free Underground Mortgage Refinancing Videos.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
