People contact me and say “You keep saying not to shop by rates, fees or otherwise; what the heck am I supposed to shop by?!?” And I keep saying “Buy the loan originator – use my 8 steps and 7 questions guidance to find a good loan.” Apparently that isn’t enough for some people. They need to see the hard numbers – and want to know what to be looking for on a good faith estimate.
First – good faith estimates are worthless. They promote lying, deception and unethical behavior. Why? Anyone can claim to be acting in “good faith.” My “good faith” and your “good faith” can be completely different – especially when there are thousands of dollars involved. But if you must compared GFE to GFE (which is a horrible decision, by the way) then here are 5 quick ways to know if your GFE is legitimate or not.
- The loan amount, interest rate, loan term, 1st payment date are all complete. With out these essentials properly entered you are looking at a sloppy misrepresentation.
- Fees for the appraisal, lender, underwriting, funding, or processing are entered. You will most likely have some fixed fee charges – they should be on the GFE, not show up last minute.
- Interest should be added. (Line 901) Many lenders leave the interest amount blank because it makes the GFE look more expensive. If its blank you can tell right there that the originator is trying to make the loan costs look more attractive – red flag.
- Title and escrow fees and impounds are included. If you requested impounds they should be estimated on the GFE. Again, if they aren’t there the originator is looking to make the costs look more attractive – pay attention to other areas, and proceed with caution. Title & escrow fees include fees such as recording and endorsement – unless the originator is specifically covering 3rd party fees they should be on the GFE.
- Yield Spread Premium is disclosed. If you are working with a broker the yield spread premium should be listed on the GFE. Many brokers do not list it hoping that you’ll “miss it” at signing. If there is no YSP listed on the GFE ask them to guarantee that there is no YSP made on your loan.
Remember – shopping for the lowest-cost loan via a comparison of good faith estimates actually pre-selects you for doing business with an unethical loan officer who has bet on “closing” you at the signing table by talking you in to accepting the higher fees at the end of a long process. Don’t do it. Look for a more complete GFE with “reasonable” loan origination charges; that will give you a more accurate idea of the costs associated with the transaction.