Many homeowners rely on the Good Faith Estimate when comparison shopping for a mortgage loan. While it’s true that the Good Faith Estimate gives you more information than the Annual Percentage Rate (APR) there are important limitations you need to be aware of before choosing a lender based on this document. Here are several tips to help you choose the best loan offer when refinancing your mortgage.
How do you really know which mortgage is better when refinancing? Do you choose the loan with the lowest mortgage rate regardless of closing costs and other fees? Do you go with a lender claiming to offer no fee mortgage refinancing and hope that you’re getting a competitive mortgage rate? When it comes to refinancing your home the answers to these questions are not black and white but depend on your individual financial situation. In order to make sense of your options when refinancing it helps to understand how loan originators and mortgage lenders make their money.
The first thing you need to know is that mortgage loans are sold on a commission basis. Your loan officer or broker is not interested in giving you a fair and accurate mortgage quote whatsoever; this person is only interested in selling you the loan that nets them the largest commission. To accomplish this goal the Good Faith Estimate that they give you may provide very little truth about the actual costs involved with your loan.
Wait a minute, isn’t the Good Faith Estimate required by law? Mortgage lenders are required by law to provide you a copy of the Good Faith Estimate; however, this document is merely an “estimate” given in “good faith.” We all know that estimates have a nasty habit of changing before everything is said and done. Another problem with your Good Faith Estimate is that your loan officer or broker knows that most people have no idea what wholesale mortgage rates are, or even how they work. Because this person is paid by commission it’s not in their best interest to give you a good mortgage rate. The more you pay when refinancing, the more money they stand to make.
Because your Good Faith Estimate is just an estimate, like many other salespeople, loan officers and mortgage brokers tend to “stretch the truth” in order to get a sale. I say stretch the truth; however, in most cases this means flat out lie. These people know the wholesale rate that your lender approved you; however, they mark this mortgage rate up to get a commission from the lender. This markup of your mortgage rate is frequently omitted from the Good Faith Estimate entirely.
This is why most mortgage quotes you receive are anything but accurate.
Did you know that an honest mortgage broker needs 17 pieces of information before they can quote you an accurate mortgage rate? If your loan officer or broker is not asking you for the following information they are just feeding you a line to get your application processed.
Here is the information need to accurately quote a mortgage interest rate:
1. Loan Type: Mortgage Refinance or New Purchase
2. How Much Are You Borrowing?
3. If Purchasing, Do You Have a Down Payment?
4. What is Your Credit Score?
5. What Type of Property Do You Have?
6. Will You Be Taking Cash Back?
7. What is Your Employment Status?
8. What is Your Property Address?
9. Is Anything Being Paid in Escrow?
10. What is Your Home’s Value or Purchase Price?
11. Is This Your Primary Residence?
12. What Type of Loan?
13. What Term Length?
14. How Long Have You Been Employed?
15. Do You Have a Bankruptcy?
16. Has Your Property Been Listed For Sale?
17. Are You a US citizen?
If you receive rate quotes without providing this information you are getting a bogus quote. The person quoting you has no intention of honoring the rate they are giving you. You can save yourself a lot of money and future headaches by avoiding this person all together.
The good news is that you can find honest mortgage brokers willing to work for a reasonable origination fee without marking up your mortgage rate. You can learn more about choosing the best mortgage offer for your situation when refinancing, including expensive pitfalls to avoid with a free mortgage refinancing DVD.