Effective January 1, 2010, lenders have to lay out the costs for potential borrowers in a new Good Faith Estimate (GFE) form. Ironically, this form does not answer the bottom-line question of the amount you need at closing or your monthly mortgage payment. However, it does indicate which costs are guaranteed to stay the same and which might change.

The GFE concept is not new, but the form and the way the costs appear have been rearranged.  In the past, a customer could shop for a loan before he settled on a lender and obtain a written GFE, but still be clueless as to the real coast of the loan.  The best loan is not the necessarily the one with the lowest interest rate, as there are numerous other fees involved in obtaining the loan.

How lenders divvy up the fees to process a loan differ; the new form does not list each specific component. The new form may seem to offer less transparency as all the fees are lumped together, but they emphasize the total costs for loan origination, which is really the important thing.

The strategy is similar to that used by some grocery stores which stress total costs rather than the cost of one item. One week, Giant Eagle may have skinless, boneless chicken for $1.79 a pound, which attracts some shoppers.  The advertising folks at Giant Eagle hope you will do all your shopping there when you come for the chicken.  A shopper who patronizes another store could pay a little more for their weekly chicken fix, but still come out of the store paying a few dollars less for the same selection of items for a given week.  Some shoppers might pick up the bargains at Giant Eagle or Acme and do the rest of their shopping elsewhere, but for the majority of shoppers who use one store, the total bill for the cheap chicken and the rest of the items in their shopping cart could actually be more than from another store where prices were lower overall.

The new rules direct the borrower’s eyes toward the total cost of loan origination but not the total cost to finalize the transaction. Some costs outside section one of the form may change – including the interest rate. This is why the completed form does not offer the amount due at closing or the monthly payment.

In reality, you could collect GFE’s for several banks, perhaps even before you finalized the deal for your home and before the house was appraised or the title process was done.  These services, as well as the cost of insurance, can vary.  The bank can only provide you the costs it has a handle on; anything further would only be ballpark guess.

The government has mandated using the new form starting in 2010.  The question remains: Will this form really give consumers a better idea of the cost of credit?

Express Realty Services has no crystal ball to predict what you will pay each month or at closing, but we will do our best to keep you informed of all the costs so you are not surprised at closing.  When you buy an affordable DC, MS, or VA home from us, we will be with you every step of the way until those keys are in your hand and beyond.  If you want a Realtor® with staying power, call us today!