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Do The New Rules Help? – The New Good Faith Estimate

Nobody would say that real estate settlement procedures and the forms involved have ever been perfect.  And, the GFE, or Good Faith Estimate, required from lenders for a potential mortgage borrower has never been perfect either.  It's purpose is to provide, "in good faith," the estimated costs to the buyer of their loan and associated real estate closing costs.  It is done at the very beginning, when the buyer has located a home and wants to know their estimated costs.  The form has always shown the interest rate and payment for the loan, and estimates of items that would be paid at closing, such as taxes and insurance for escrow, title company fees, and more.  The most important thing to take away from this article is that the good faith estimate can no longer be used as a tool to show the borrower how much cash they need to bring to close.  In fact, the new 2010 good faith doesn't have a final cash to close line anywhere on the form.

Were there abuses to the old Good Faith?  You bet.  Were there mistakes?  Oh, yes.  Were there surprised buyers scrambling for cash at closing?  Absolutely.  Will the new government requirements and rules for a better GFE solve the problems?  Hmm...  The new Good Faith Estimate form incorporates a great many changes, and some of them have an admirable goal, but the lender or mortgage broker could be the new "aggrieved" party in some cases.  No gripes intended, but the form has been changed to attempt to protect the borrower against unexpected charges.  To do this, it requires that the mortgage broker guarantee certain charges including those fees charged by third parties in the transaction, and if they end up higher, they can't be charged to the buyer/borrower.  They'll be absorbed by the lender or mortgage broker.  If you are a rate shopper and like to call multiple mortgage pros to get a comparison of GFE's, you'll be hard pressed to find more than one that will stick their neck out based on a hypothtetical loan scenario.       

Even more confusing for the borrower, the seller's/owner's title insurance premium and any transfer taxes MUST be on the form.  That's even when, as in most cases in Nevada, the seller is paying those items.  It requires a little preparation before the buyer goes to the bottom line and has a seizure when there's an extra three thousand dollars or so that really won't be charged to them.

So, if you're about to be presented with the GFE for your next home purchase, don't go to the bottom line until the preparatory explanation has been completed to your satisfaction. 

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