The Importance of the Good Faith Estimate When Refinancing
By: Rosemary Rugnetta | January 31st, 2013
Refinancing an existing mortgage has been extremely popular during the past few years since mortgage rates have dropped to historic lows. In fact, many homeowners have already refinanced several times as rates fell lower. Since a mortgage refinance does cost the borrower money, knowing the importance of the good faith estimate when refinancing is significant.
From the very beginning of submitting a loan refinance application, lenders are required to give the borrower a good faith estimate. All of the related fees are to be stated on that original GFE. Some items may change in the course of the refinance process, but each time the GFE changes, lenders are required to give the borrower a new GFE.
It is not unusual for some homeowners to obtain more than one mortgage rate quote, as well as, more than one good faith estimate. This is a way of knowing what is being offered at different lenders. Since lender fees can vary depending on location and state, it is a good way to know what is normal and appropriate. Closing costs can be a significant factor in some areas that have state specific rules.
There are certain fees that all lenders will charge across the board. There are also third party fees that are also added to the closing costs. All of these fees can be different depending on the lender. Fees for escrow accounts should be the same since they are based on actual real estate taxes and homeowner insurance premiums, but the amount required by the lender can be different. Government fees, which are mandatory and based on state and/or county requirements, will also be included in the good faith estimate.
Other fees, such as processing, underwriting and document prep fees, are really lender fees and will differ from lender to lender. In some cases, borrowers may be able to negotiate these fees. Having a good faith estimate from more than one lender will help the borrower to compare these extra costs and have the knowledge needed to negotiate with the lender.
The are new laws that protect the borrower from unexpected fees at closing. Each time changes take place in the refinance process, new disclosures must be given and a waiting period of three days must occur before closing. This gives homeowners the opportunity to go over the latest GFE prior to closing.
By having a Good Faith Estimate, it is easier for the homeowner to compare the costs with the final HUD-1 Settlement Statement at closing. New laws require that the borrower receive the HUD-1 no later than 72 hours prior to the scheduled closing date. This gives the borrower the chance to examine the final costs of the refinance prior to reaching the closing table. These new rules might be slowing down the process, but they are also protecting the borrower from seeing the paperwork at the last minute. Borrowers now have the time and opportunity to question what they are being charged before actually signing any papers.
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