If you recall, several years ago U.S. Congress tried to protect consumers from a few unscrupulous lenders by requiring all lenders to calculate and disclose the annual percentage rate (APR) you pay on your mortgage loan. But most homebuyers will learn more by concentrating their attention to the Good Faith Estimate of Settlement Costs (GFE). Although Congress meant well, the APR is not helpful and may be confusing.
If you are looking for a good way to understand your costs of borrowing and/or to compare one lender’s costs to another, the Good Faith Estimate is your best bet.
Get your lender to provide a written Good Faith Estimate before you commit your mortgage business. When reviewing a Good Faith Estimate, keep in mind that the lender actually controls only a certain portion of the disclosed costs. Other parties typically control the cost of appraisal, settlement, title insurance, recording fees and taxes, survey, and the “prepaid” expenses of homeowner’s insurance, mortgage insurance, real estate taxes, etc.
Review these origination fees, discount points, etc. and you will have the ability to understand the full costs of your proposed mortgage loan.
If you have any questions about this tip, please ask!
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