January 8th, 2010
New Standardized Mortgage Forms
The new, standardized Good Faith Estimate mortgage form mandated by the Department of Housing and Urban Development will give consumers more clarity when shopping for a mortgage. Required across the industry, this simplified format holds lenders accountable to disclose an accurate estimate of loan terms and fees while also discouraging lenders from adjusting certain costs after providing an estimate. It details the specific mortgage costs clearly so homebuyers understand the true costs of their loan, allowing an apples-to-apples comparison across lenders to get the best loan available.
Need for clarity
Mortgage loan fees can have a significant impact on the total cost of a mortgage, and should be carefully considered when deciding on a mortgage lender. Fees attached to mortgages, like origination charges and settlement fees, can sneak up on a homebuyer and add up to exorbitant costs. Lenders can take advantage of a consumer’s confusion about cost estimates and complex charges, which results in paying more than they bargained for. Understanding exactly what the consumer is expected to pay not only clears up confusion, but can save a significant amount.
Making an informed decision
In the new, three-page form, all factors going into the true cost of a loan, such as settlement charges, initial interest rate, origination fee, loan term, prepayment penalties, are clearly listed in an easy-to-understand, easy-to-compare format. The new form makes it easier for consumers to recognize the better deal between lenders. Lenders also cannot increase the origination fee after an estimate, and have a combined 10% cap on increasing other charges, like recording charge or title services. Costs dependent on third parties selected by homebuyer, like homeowner’s insurance, have no restrictions.
Uncle Sam’s helping hand in regulating the mortgage process follows other initiatives, like Bank of America’s Home Loan Clarity Commitment and Credit Card Clarity Commitment, to make industry practices more consumer-friendly and straightforward. Now, homebuyers no longer have to step into the home-buying process feeling suspicious of lenders. Purchasing a home is one of the biggest financial commitments in a consumer’s lifetime, and it’s crucial to know all your options when choosing a mortgage lender.
Housing outlook
This will help homeowners, but isn’t a cure-all. It is still a homeowner’s onus to research several lenders, compare options, and choose the mortgage that is best fit for their financial situation and home. But coupled with the Homebuyer Tax Credit and historically low mortgage rates, a less stressful mortgage process is an added incentive to go house-hunting this year or look to refinance your existing mortgage.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
Some mortgage shoppers may not realize that a good faith estimate of closing costs can be requested from lenders without applying for a home loan.