New Good Faith Estimate of Closing Costs
Sometimes the hardest part about having new forms is that, well, it's NEW! It's DIFFERENT! We have to create new scripts to EXPLAIN it so that our clients can UNDERSTAND it. But first... WE have to understand it.
So here are just a few points regarding the new Good Faith Estimate that I hope will help with that.
First, we have to recognize the old Good Faith Estimate was really an estimate focused on how much the BUYER needed to bring to closing and how much they would have to pay monthly.
Now, we have an estimate of closing costs related to the mortgage REGARDLESS of who pays! No credits offsetting, just a disclosure of the expenses. Let's do a simple down and dirty comparison of then vs now to help get my point across.
For the purpose of ease, we'll pretend we have an FHA loan with a sales price of $100,000.00. Here are the other details for my example:
- The buyer is putting minimum down of 3.5%, or $3,500.
- Buyer has put $1,000 earnest money down.
- We'll pretend the total closing costs and prepaids are about $4,000 and the seller is going to pay them.
- And of course, on an FHA loan we have upfront mortgage insurance of 1.75% off the base loan amount, or about $1,700, which is rolled into the loan.
The old Good Faith Estimate, which was created just for the buyer's information, the amount required for closing would show:
- Closing costs and prepaids being paid by seller, which would show the credit for the buyer.
- Mortgage insurance of $1,700 would be added to the mortgage, which would also be credited.
- Leaving basically the down payment of $3,500, less the earnest money deposit, or $2,500.00
With the new Good Faith Estimate, there are no credits reflected. It is merely a reflection of ALL costs associated with the transaction regardless of who is paying them. Bottom line is going to look like this:
- Closing costs of up to $4,000
- Mortgage insurance of $1,700
- Down payment of $3,500
- NO CREDITS, so bottom line will be a total of the above, or $9,200.00.
The buyer isn't paying any more or any less. It's simply an explanation of all costs that need to be taken into consideration on that transaction.
Will this leave the buyer confused? Yes, UNLESS we redirect our attention to the residential loan application, known as the 1003! That form does, in fact, give a total monthly payment AND breaks down what amount the buyer will need for closing. Let me show you specifically where to look.
Page 4, Section VII:
Notice the credits given for seller paid fees
Earnest Money
and MIP financed
Leaving what the Buyer needs for closing
And while we're looking at the 1003, we can also see the estimated TOTAL monthly payment on Page 2 of the application, Section V:
So, just change your scripts!
- The GOOD FAITH ESTIMATE is a reflection of ALL costs regardless of who pays what.
- For the total monthly payment and cash required at closing, look at the Residential Loan Application, referred to as the 1003, Sections V and VII.
Remember, your first time homebuyers have never seen the old GFE, so they don't know the difference. Don't dwell on the change, just focus on new scripts to help your buyer best process the information disclosed in the formats we are required by law to use.
Opinions expressed here are the sole responsibility of the author, and do not necessarily reflect the view of Starkey Mortgage.
Ruth Vogt, Colorado Regional Manager
Colorado #LMB100023827, NMLSR# 257576
You make this all look easy. I guess it is just learning new scripts!
Ruth, that's a nice explanation and to be truthful, that looks easier to understand than the old one was.
I am going to leave this to the expert, the loan broker :) Thanks for going over this for a mortgage dummy, Ruth.
Thanks for all the work you did putting this together. I like the approach you took with the explanations of the changes. The overall concept of all charges regardless of who pays them is a good explanation that cuts to the chase for a purchaaser.
Dawn, as if we didn't already have enough scripts, huh???
Barbara, I think it might just be that... easier once we get used to it, that is!
Jane, There have been so many changes lately that it's hard for all of us!
Thanks, Guy. If we can shift the focus off the buyer when talking about the GFE, I think we'll have less panic.
Fantastic blog Ruth as usual! You DO make it look so easy! As I was reading this is occurred to me, I think part of the reason this is all so confusing is that they kept the title for a form that does not do the same thing the prior form did. They should have reppealled the old "good faith estimate" form and called it something new. Then we would just have a mind set adjustment on a new form, not an adjustment on a new old form with the same name that means something new, meaning different...I have one thing to say about all that-if you followed everything I just wrote-you must work for the government! True?
Renee... uh-oh... I did in fact, follow what you were saying. Yikes!
GFE Classes for Mortgage Dummies by Ruth Vogt. Thank you for making it easier Ruth :)
Great explanation Ruth. I will use this as a resource
Thanks Ruth for the clarity of your blog. I will for sure send this out to people to help them understand the GFE better!
Good job putting this together....I like it! Looks good to me.
Thank you,
Patricia/Seacoast NH
I have never responded to or as far as that goes read a blog as I'm not what you would call HIGH Tech by any means. Not even sure if it is proper blogging etiquette to comment on a blog that my wife wrote but here goes. In all the classes and seminars I have attended to attempt to explain this new form this is the only one I can truly understand and will be able to use in the future. Thanks for taking the time....
I was reading thinking, this should be featured. Then, there it was! Congratulations, very good info.
Thsi wa a very informative post, Ruth, espeically as many things I have read on the subject are negative. Thanks!
Change is always difficult. Thanks for breaking this down so clearly.
Thanks for the great explanation! That was very helpful.
I have been to two presentations regarding the new GFE! Yet I still enjoy learning more and more about the process. Your explanation is very clear easy to follow. Thank you.
I'm with Jane - I leave this to the loan broker. I do my best to just keep moving forward, regardless of the changes. We can't bemoan what used to be. Great explanation, Ruth!
This is a perfect aid, and your explanation of the changes is clear. I like the old GFE better - can't see why this new version is an improvement. What am I missing??
I am bookmarking this as my reference point. Thank you so much for taking the time to present this.
Ruth -
Good run through - complete with visuals! I went to a presentation last week with one of my closing lawyers but it's always good to hear/see it more than once.
Michael
This goes to show why so many Realtors trust you, Ruth, to be their trusted lender. Great post my friend!
I just had this conversation with one of my lenders. It's times like this which increase my appreciation for seasoned professionals. Thank you for this well written blog post about this topic.
I'm actually attending a continuing education class on these forms on the 21st! Thanks for the description!
Jackie, I like the title! Good idea!!
Danny, I'm glad you find the info useful.
Tucker, maybe we should have used this in the class last week, huh? :)
Patricia, Glad the "story line" made sense.
Jim, thanks for stopping by! (that's what we say on blogs when we're surprised someone read our blog!!)
Greg, Double thanks! For thinking enough of the post to think it should be featured! Even BEFORE it was featured!
Steve, it's not going away, so we need to embrace it. Like it or not, doesn't matter. It's the new law.
Dr. Baugh, I'm glad it made sense and was easy to follow.
Rolanda, you are most welcome.
Terri, I think this might be one of those topics that it takes several classes to get our arms around it.
Pamela, If we wasted time on every change that came along, we'd never sell homes, huh?
Renee, the best I can figure, it makes it easier for HUD auditors to factor in true cost for value concerns. Just my personal opinion, though.
Michael, no doubt this will be a new subject that we can't hear enough explanations on.
Thank you, Wendi! And I loved your recent post on the tale of two quit claim deeds!
Lola, you are right on: work with seasoned professionals!
Janet, drink lots of coffee before your class ;) The subject can get rather dull!
Thank you for this information. It will be put to use right away.
Great job explaining the new GFE, Ruth... As the primary closer in my office, I have conducted nearly 7000 loan signings over the last 10 years. The new GFA and HUD-1 are going to change my presentation a bit... Still waiting for the first to close on the new forms...
Ruth - great post, thanks for making the changes to this form so understandable. I'll reblog this post to share it with my readers also.
Thank you for making this alot clearer than it was to me. The visuals really helped too!
Now that was a greta, simple, explanation of of the GFE. I like you statement "first time homebuyers have never seen the old GFE". I need to keep that in mind.
Hi Ruth, great explaination! Thanks so much. And btw, congratulations on being featured! As long as I've been around here, I've never written anything that got me featured! Good for you!
First - THANK YOU! I've been asking over and over again, why lenders are complaining as though they're no longer allowed to tell buyers the bottom line info all buyers want. Now, you've given the perfect answer.
But I also have a question about your illustrations. The part where you're talking about total monthly payment, but then the clip is monthly income. Am I missing something, since no one else noted this?
Ruth, Your approach is perfect. The change is here, we must march to the new tune. Those who were not here before don't know what tune we used to sing. Sure it isn't perfect, but it does answer the question, what is the loan going to cost. Congratulations on being featured.
Gary, Glad you will be able to put the info to use.
Bill, good luck! We have had quite a struggle with the new HUD - not from our end, but getting the title companies to agree with us on "how to". I'm just glad we get our figures over to title on average of 6 days early. Otherwise, it would be a disaster!!!
Kevin and Monica, thanks for the repost!
Keith, glad the visuals helped!
Love the part about "your first time homebuyers have never seen the old GFE". So true! They don't know the difference anyway, so lets not belabor the point.
Eventually, we'll get used to the new forms. But, beware, we'll be complaining when the inevitable happens and the forms get changed again!
My company covered the new GFE in a recent sales meeting. This post answers a couple of my questions. Thanks for taking the time!
Tim, it's confusing enough for our 1X HO's, isn't it?
Marianne, I am quite pleased that you stopped by... and thanks for the congrats.
Joetta, The section showing the monthly payment is directly to the right of the monthly income. I've circled it in my illustration. (I appreciate your positive comments!)
Thanks, Jon, for the congrats. Appreciate that you checked out my post!
Hi Ruth, Together with the class I took today and this information, I think I've got it. It will take some time to get used to the new HUD - but I will ! Thanks for the information here. I always had to have the borrowers sign the 1003 at closing, will this be signed and seen before then?
Karen, how true! Ugh!
Dee, so glad I helped clear up even some of the confusion.
Mary, Borrowers are suppose to sign an intial application (1003) and a final application. So, yes, buyers should have the information provided to them right upfront at the time of application.
There is a reason I stopped doing loans. I suppose when you do it all the time it is second nature.
Ruth: What a beautiful, simple explanation. Thanks! Carrie
Ruth,
Thank you for this great explanation of the new methods! I'm going to "Re-Blog" this to refer some folks to...going forward.
Best to you in 2010!
Your post makes a point no one else has made. I wasn't seeing it that way. Bet you are right about the HUD auditing.
Gene, Probably a few more this legislation has pushed over the edge! :)
Carrie, appreciate the compliment.
Doug, thanks for the reblog!
Beverly, That would be the only thing that might make sense.
Thanks for highlighting some of the differences with the new GFE. For buyers who never saw the old GFE, the new one seems to consolidate/simplify the information. You're right, we can't dwell on the change!
What's that saying, Patricia? Lemons and lemonade???
why why why did they have toscrew with it...first timeers dont care what the total is they just want to know what they have to bring in to closing and what is their monthly payment
NO CREDITS, so bottom line will be a total of the above, or $9,200.00.
that 9,200... will scare the crap out of first timers
I understand what you are saying, Dana. My suggestion is that you make certain the loan officers you are working with focus on the actual application (called the 1003) as the information there is focused JUST ON THE BUYER, and will give their amount required for closing and their total estimated monthly payment. Much easier for the first timers to understand!