When comparison shopping for a new mortgage loan, it is important to compare everything about the loans, not just the interest rates. Many borrowers assume choosing the loan with the best interest rate ensures them a good deal when mortgage refinancing; however, these homeowners often overlook lender fees and closing costs.
The best way to compare mortgage offers is by using the Good Faith Estimate and HUD-1 Statement. Some financial advisors will tell you to use the Annual Percentage Rate (APR); however, there are costs the APR will not factor in. Using the Good Faith Estimate will give you the best comparison to make an informed decision as to which mortgage is best. Mortgage lenders are required to give you the Good Faith Estimate within three days of receiving your mortgage application. You’ll want to collect Good Faith Estimates from the lenders you are considering before applying. Most mortgage lenders will provide you a copy of the Good Faith Estimate simply by asking for it.
Once you receive the Good Faith Estimate there are a number of fees you need to locate. Look for the loan origination fees listed on the Good Faith Estimate. Loan origination should not be more than 1-1.5% of the loan balance for a home you will occupy. If you are refinancing an investment property you can expect to pay 2-2.5% for the loan origination fee.
Next, locate the loan processing fee. This fee is usually paid to your mortgage company; however, it is not uncommon for a third party processing company to receive it. If your processing fee is paid to a third party, their name will appear on your Good Faith Estimate. Loan processing fees vary from one lender to the next so it is important to comparison shop and factor this fee into your decision when choosing a loan package. Loan processing fees greater than $400 is considered excessive and should not be paid. The loan processing fee is commonly inflated by mortgage companies.
Look for anything on the Good Faith Estimate for any fee that resembles a broker administration fee, loan submission fee, courier fee, lock fee, or application fee. Do not pay any of these fees as they are simply junk fees your loan originator slips in to boost their revenues. To recap carefully review your Good Faith Estimates for the following items.
I. Compare the total compensation paid to the loan originator.
II. Find the processing fee. (Should not be greater than $400)
III. Do not pay any of the junk fees listed above.
IV. Compare the interest rates from a variety of lenders to determine what is fair for a homeowner in your financial situation.
V. Look closely at columns 900 and 1000. These figures are not your closing costs. The Pre-Paids found in these columns are for your homeowners insurance and taxes.
You can learn more about your mortgage refinancing options without overpaying by checking out my free Underground Mortgage Videos.
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.
Thanks for this article. Is it possible to receive a GFE before they pull your credit? When I first purchased my condo this was not an issue. From a particular lender, they want to pull my credit before doing anything. Is that acceptable?