Shopping For Your Loan (Mortgage)
Nov 15, 2010
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0:13 Hi. I’m Vicki Bott with the U.S. Departmentof Housing and Urban Development.0:16 Buying a home is one of the most exciting – and largest purchases most of us ever
0:20 make. Selecting the right mortgage is a veryimportant part of the home buying
0:24 process.
0:25 To help you navigate this process, we’veput together three videos. They include:
0:30 Shopping for your Home Shopping for your Loan, and
0:34 Closing the Deal.
0:36 Today we’ll discuss shopping for your loan.Hopefully, by the end of this video you’ll
0:40 be able to compare various loan offers and determine how long an interest rate is available
0:45 to you; what are the key loan terms and how much will
0:49 this mortgage loan cost you;
0:51 To help you shop for a mortgage and understandthe terms being offered to you, we’ll
0:55 show you how to use a Good Faith Estimate.The good faith estimate…or GFE…is a
1:00 document that mortgage brokers and lenders are legally required to give you shortly
1:05 after you apply for a loan. We suggest thatyou shop and compare at least three GFEs
1:11 because this will help you get the best mortgage loan for your personal situation and
1:16 protect you from surprises at the closing table.
1:20 So, what is in the GFE?
1:21 The GFE is a three-page form that spells outloan terms and charges related to the
1:26 loan.
1:26 Let’s review the GFE page-by-page focusingon important information you need to
1:32 know.
1:33 Page 1 includes an “Important dates” sectionthat indicates the period time the loan
1:38 offered is good for.
1:40 The first line of this section will tell youthe date the interest rate offered is good
1:43 through. When comparing GFE’s make sure checkeach GFE to determine whether the interest
1:49 rate is locked or floating. So how can youtell?
1:53 Well if the date on this line is the samedate your GFE was issued then your interest
1:58 rate is floating. If the interest rate isfloating then the terms in the GFE may only
2:03 be available for a short period of time.
2:06 If the date on this line is in the futureit means the interest rate represented on
2:11 your GFE is locked through that date. It isimportant to know if your interest rate is
2:16 locked you still must close your loan on orbefore that date for that interest rate to
2:22 be effective.
2:24 Let’s talk about Line 2.
2:27 Line 2 reveals the date many of the loan chargesor closing costs are good through. We’ll
2:32 gothrough these in great detail later, but it’s
2:35 important to know that if you want tomove forward with this loan, you must let
2:39 the mortgage broker or lender know onor before this date or some charges could
2:45 increase.
2:46 These last two lines include information aboutthe interest rate lock and when
2:50 you must lock down your interest rate if itis floating.
2:53 Now let’s go over the “Summary of YourLoan” section. The first three lines will
3:00 tellyou the loan amount, the number of years you
3:02 have to repay your mortgage and theinterest rate. The interest rate is one of
3:07 the most critically important pieces ofinformation that a GFE will provide you. Make
3:12 sure as you compare GFEs fromdifferent mortgage brokers or lenders that
3:16 you focus on the interest rate and the chargesor closing costs associated with that rate.
3:23 This section will also indicate how much you’llbe expected to pay for principal,
3:27 interest and mortgage insurance. Compare thisamount with other GFEs but
3:32 remember, this does not include property taxesor homeowners insurance payments. Those
3:38 costs are determined by the property you choosenot by the loan program you’re
3:44 offered.
3:45 This next part is a series of questions relatedto whether the loan has particular
3:48 features like prepayment penalties and balloon payments.
3:52 Pay particular attention if any of these boxesare checked yes. If that’s the case,
3:58 make sure you ask the lender or broker fora full explanation so that you understand
4:03 how these features could affect your loanand loan payment. If you’re unsure, you
4:08 may also want to ask a trusted financial advisor.All of these features are explained in detail
4:14 in“Shopping For Your Home Loan – HUD’s
4:17 Settlement Cost Booklet” that you willreceive when you apply for a loan and which
4:21 can be found on HUD’s web site at anytime.
4:24 The next section focuses on escrow informationand whether a lender will even
4:29 require an escrow account in order to payproperty taxes and homeowner’s insurance.
4:35 Once again,the payment amount only reflects your mortgage
4:39 payment for principal and interest butdoes not include escrow payments. Be aware
4:45 that your escrow payment can be asizable part of your monthly mortgage expenses
4:49 and you will want to budget.
4:52 At the bottom of the first page is a summaryof the loan charges which are detailed on
4:56 page 2 of the GFE.
4:59 Now let’s take a look at page 2.
5:02 Let’s begin with the fees you’ll pay whichare referred to as your “adjusted origination
5:06 charges”. These include all the costs chargedby your lender for processing your
5:12 loan, as well as charges for the interestrate you have chosen. Block 1, Block 2 and
5:19 Line A all work together to show the totalloan origination charges you’ll be expected
5:23 to pay.
5:24 Let’s start at the bottom of this section.Line A is important because it shows you the
5:30 total amount of origination charges you’llpay for the loan, basically your “out of
5:35 pocket” costs.
5:36 Be aware as we review Block 1 and Block 2,that you can pay lower origination costs,
5:41 expressed on Line A, in exchange for a higherinterest rate. Likewise, you can pay
5:47 higher origination costs on Line A, in exchangefor a lower interest rate. Be sure to
5:52 ask your mortgage broker or lender about whatoptions you have.
5:56 Now let’s look at how Block 1 and Block2 work together to determine what your
6:01 adjusted origination charges are on Line A.
6:04 Block 1 shows the amount your mortgage brokeror lender gets paid for processing
6:08 your loan.
6:09 Block 2 is all about the interest rate.
6:12 There are three boxes in Block 2 and one ofthese boxes should always be checked.
6:18 If box 1 is checked, all origination chargesare included in Block 1.
6:23 If box 2 is checked, you are receiving a creditin exchange for a higher interest rate,
6:28 which reduces the amount of money you willneed at closing.
6:31 If box 3 is checked, you are paying “points”and are receiving a lower interest rate.
6:37 Paying points allows you to pay additionalmoney up front in order to lower the interest
6:42 rate.
6:44 The charges or credits in Block 2 are thenadded or subtracted from Block 1 and the
6:50 remainder is listed in Line A.
6:52 So, while it’s important to understand whatcharges or credits are included in Block 1
6:52 and Block 2, the charges you ultimately payat closing are reflected in Line A.
6:53 Let’s look at an example.
6:56 Here, Block 1 tells us that your broker orlender is charging you 65-hundred dollars
7:00 toprocess your loan. In Block 2, Box 2 is checked
7:04 reflecting a credit of $3,000 inexchange for a higher interest rate. This
7:10 credit will reduce the fees you will haveto
7:12 pay at closing. Subtracting Block 2 from Block1 results in $3,500, which is the total
7:18 amount of origination charges that you wouldpay at closing.
7:22 Now let’s take a look at “Your Chargesfor All Other Settlement Services”.
7:27 The charges listed in Blocks 3 – 11 arefor services that you are required to pay
7:31 as acondition of the loan. This includes things
7:34 like an appraisal, title services andinsurance. The lender may choose which company
7:40 performs some of these servicesand may let you choose the company that performs
7:43 others.
7:45 If the lender chooses the companies that performsthese services, the combined cost
7:49 for those services may not increase more thanten percent above the estimated
7:54 charges on your GFE.
7:57 If the lender allows you to choose who performsa service, the lender must give you a
8:01 list that has the name of at least one companyfor each of these “shoppable” services.
8:07 You’re not required to use these companies,but if you choose a company that is on
8:10 this list, the charges for those servicescannot increase more than ten percent above
8:16 the charges on your GFE.
8:18 If you choose a company that is not on thelist, the charges for those services may
8:23 increase from the charges listed on the GFEand that ten percent limit will not apply.
8:28 The charges for origination (highlight LineA) and all other settlement services
8:31 (highlight Line B) are combined here and thattotal is moved to the bottom of page 1.
8:37 Be sure as you shop for a loan and compareGFEs that you focus on the lender determined
8:42 fees shown in blocks 3 – 11. These fees, andthe amount your mortgage broker or lender
8:48 gets paid for processing your loan, are thecosts for getting your mortgage.
8:53 It’s important to note that these chargesdo not reflect the total amount of money you
8:59 will need to bring to closing table. Theyare the total charges to get the loan allowing
9:04 you tocompare loan programs. Please ask your real
9:07 estate agent or lender for an estimateof the total amount of money you will need
9:11 to bring to closing.
9:12 Now let’s take a look at the last page ofthe Good Faith Estimate.
9:17 Page 3 contains 3 sections: a tolerance chart,a trade-off table, and a shopping chart.
9:24 Earlier I discussed that some charges hadlimits on how much they could
9:30 increase. The tolerance chart gives more informationabout which charges may not
9:35 increase at all, which charges that, in total,may not increase by more than ten
9:40 percent and which charges can change. At closing,if the lender exceeds these limits
9:47 or ‘tolerances,’ then they must reimburseyou the difference, either at closing or within
9:53 30 days.
9:54 Let’s look at the trade-off table. Thistable shows you the trade-off between
9:59 receiving a higher interest rate for lowerclosing costs and vice versa. You can pay
10:05 now – in terms of paying higher closing costs – or pay later through a higher interest
10:11 rate. You decide which loan program fits yourpersonal situation.
10:16 Ask your lender about what options you have.
10:19 The last section on page 3 is a shopping chart.By filling in the loan terms and
10:24 settlement charges from the various GFEs youreceived from different mortgage
10:28 brokers or lenders. When comparing the loans,make sure that you take into account
10:32 whether or not interest rates are floatingor locked. Compare and decide which loan is
10:38 best for you and let the mortgage broker orlender know so that you can move forward
10:42 with the terms and costs shown on the GFE.
10:46 Once you decide on a mortgage broker or lender,keep your GFE. Bring it to closing
10:52 to compare your estimated charges and loanterms on the GFE to the final charges
10:57 and loan terms which will be reflected ona document called the HUD-1 Settlement
11:01 Statement.
11:03 To make it easier for you to shop for a loanwith different mortgage brokers or lenders,
11:07 you only need to pay for a credit report toget a GFE. Once you let the mortgage
11:13 broker or lender know that you want to proceedwith a loan you may be charged for
11:17 additional fees.
11:18 So, let’s quickly review what you’ve learnedand what you need to focus on as you
11:23 shop for a loan using your good faith estimate.
11:26 Looking at the GFE, you should be able todetermine if your interest rate is floating
11:30 or lockedidentify and compare the loan terms of the
11:34 loan offered – like the interest rateand mortgage payment; and compare the charges
11:39 associated with getting the loan from multiple lenders.
11:43 To access other home buying videos includingour next video, “Closing the Deal”,
11:49 please visit our website at www.hud.gov/respa.
11:54 Remember that this information is also explainedin “Shopping For Your Home Loan –
11:58 HUD’s Settlement Cost Booklet” that youwill receive when you apply for a loan and
12:02 which can be found on HUD’s web site.
12:05 Armed with this information – go shoppingfor the best loan for you!
