If you are a homeowner or are thinking about buying one in the near future there are many forms that you need to be familiar with in order to get a low payment. After inquiring about a new mortgage loan you will receive many federally and state mandated forms. Among these you will see the recently updated Good Faith Estimate.
Updated and simplified for this decade the new form is intended to make shopping for a mortgage loan a lot easier. In fact the HUD website publishes a copy of a study that reveals how the form was tested among potential borrowers of different age groups and different education levels. According to the study most test subjects found the new form easier to understand when compared side by side to the previous form.
How does the new form benefit you as a consumer? First you will immediately see the interest rate being offered and the total closing costs that are required to get the desired interest rate. Second you will see a simplified version of the closing cost break down. Among the closing costs you will find prepaid items required on purchase and refinance transaction such as impounds for property taxes and homeowners insurance.
The last page of the good faith estimate includes different rate options that are available by the same lender. Lenders are now required to offer additional rate and cost combinations. The first one allows for higher closing costs and a lower rate. The second one is the opposite with lower closing costs and higher interest rates. This allows the consumer to make the best choice that applies to their individual situation.
To use the new good faith estimate consider the following: Start by selecting your preferred rate and fee combination. The ask your self if you plan on staying at the house for an extended period of time or plan to sell within five years. If you are staying for the long haul then a lower interest rate will benefit you greatly. This option may have a higher closing costs at the beginning but the cost will be offset over the life of the loan because you will by paying less interest. If you plan on selling the home in less than 3 to 5 years then you should go with the option that offers fewer closing costs. This allows you to keep more of your equity and is the best choice if you refinance again in a few years.
The final section of the good faith estimate allows you to write down the results of your comparison shopping. In lending there are big players like government banks, mortgage lenders and mortgage brokers. You need to know the differences in the negotiating process.