Because of the confusing and often misleading the old mortgage lending process was, especially within the last 5 years, lenders and mortgage brokers are now required to use a standardized Good Faith Estimate which discloses critical lending terms to the consumer in a user-friendly way, right on the front page of the disclosure. Some of these terms include the loan amount, term, initial interest rate, and total monthly payment.
Some other questions that the new Good Faith Estimate answers are:
- Can the interest rate rise?
- Can your loan balance go up even if you make payments on time?
- Can your monthly payment go up?
The new format of the good faith estimate also distinctly divulges which fees are being charged by the lender and which are being charged by third parties. This is major difference with the good faith estimate because previously, there was no distinction, which often lead lenders to make up new charges – since all fees were just guestimates that could change in the future. In addition, if you’re using a mortgage broker, you can see how much the broker is making off of your loan.
In addition, your origination costs cannot change at the closing of your loan whereas those fees were commonly and vastly different in the past. However, services fees like title insurance and appraisals can only change by 10% at closing. However, this does not guarantee that you won’t be overcharged in the first place, so don’t be afraid to shop around!
The new good faith estimate was reformed to help consumers be better informed about their mortgage loans and not be hit or surprised by unexpected changes, which can in turn, help stabilize the economy.