Mortgage Refinancing
Understanding
the Good Faith Estimate and the mortgage
process can mean the difference between
getting the best home mortgage refinancing
rates and getting taken advantage of.
Better known
as the GFE, most borrowers have no clue how
to read this government mandated item much
less how to use the GFE to their advantage.
Here we'll
cover the inside details and give you some
borrowing power when searching for your next
mortgage refinance.
First things
first, before we go over any of the inside
details, I want you to know that the good
faith estimate although required when
attempting to obtain a refinance -- lenders
and brokers alike are NOT required to tell
you the truth.
What do I mean
by "NOT" required to tell you the truth?
Simply put,
the GFE is required by law to be disclosed
to the consumer however no matter how many
quotes you get the only one required to be
correct is the one shown at the closing
table.
With that
being said, how many loan officers put all
of the most absolutely correct figures on
the GFE if they are trying to earn your
business? (not many for sure if you want my
opinion)
Earning your
business (as a loan officer or broker) comes
with a more relaxed set of rules as opposed
to providing a correct document at closing.
Here's how to
virtually guarantee you don't get fake or
missing numbers on your GFE during mortgage
refinancing and especially prior to closing.
Know What You
Are Talking About / Getting The Best
Mortgage Refinancing Service!
When shopping
for your mortgage loan financing, the best
place to start is by making knowledgeable
statements to your loan officer. Mortgage
refinancing bad experiences happen every day
because of so much interest rate focus.
Avoid being rate focused and learn the
following insider details.
Here's
something a knowledgeable home loan borrower
would say when shopping for a home mortgage
refinancing loan;
"Hi Mr. Loan
officer, I would like a good faith estimate
on a 30 year fixed rate mortgage refinance,
cash out of $50,000 for debt consolidation,
I have $70,000 in assets and I'm willing to
pay one point origination with no YSP. Also
please disclose line 824 (i.e. YSP) on the
GFE (good faith estimate) so I can make the
proper comparisons"
Now, stick
with me here while I pick apart the above
statement and show you exactly WHY it's so
powerful and how to avoid some of the better
known junk fees.
1. asking for
the good faith estimate (GFE) on your home
mortgage refinance shows use of the mortgage
loan lingo and presents you as someone in
the know.
2. stating
your loan type/product such as "30 year
fixed rate mortgage refinance" can help you
avoid the confusing sales pitch and means
you know your mortgage programs.
3. asking for
cash out/debt consolidation during your home
mortgage refinancing gives the loan officer
some inside details and helps him quote the
proper interest rate based on the purpose of
the loan. Another option would be to ask for
"rate and term" which means you only want to
lower your interest rate and NOT take cash
out.
4. when it
comes to home refinancing, showing some sort
of liquid asset such as a 401K retirement
account gives the bank extra security that
you can make your mortgage payments if you
had an emergency and needed cash. You don't
actually put your 401K up as collateral but
you do show them a copy of the quarterly
statement proving you could use the cash if
you needed to.
5. being up
front about "willing to pay one point" says
several things. First, it shows you are
willing to pay for the lenders services and
goes a long way toward preventing any over
zealous charges. Secondly, paying a point
(or 1% of pre-paid interest) can help to get
the lowest interest rate (see #6 below).
6. asking for
"no YSP" is the golden egg of refinancing
and here's why. The term YSP stands for
Yield Spread Premium" and it's the most
misunderstood term in existence. This also
ties in with the "line 824" statement in the
fact that if you are asking for no YSP,
line 824 of the GFE should display zero or
very near zero. Here's the point; if you are
willing to pay the point up front (line 801
of the GFE) then the lender should NOT also
be paying the broker a premium to sell the
interest rate to you. If the lender is
giving the broker a rebate (YSP) then you
are NOT getting the lowest rate and paying
the point up front is like paying the loan
officer twice.
Here's a good
rule of thumb on the line 801 (points paid)
and line 824 (YSP to broker) mumbo jumbo
when researching the best home mortgage
refinancing rate;
You would
typically NOT have a fee on line 801 and
also a rebate to the broker on line 824. It
really should be one or the other. Now,
since lenders don't always have interest
rates and YSP that match one for one, you
could have say $3000 on line 801 (1% of
$300,000 pre-paid interest or point) and
$125 on line 824 however the lowest rate
come with NO YSP or little to none so
comparing the two is important to make sure
the broker is not double dipping into your
pocket.
Of course, to
minimize closing costs and save the 1% point
on the above example, you can have the
lender pay the point by taking a slightly
higher interest rate and letting the lender
pay the loan officer with YSP -- however now
you know where to double check that you are
not being mislead on the actual fees or
mortgage rates.
If your lender
or broker doesn't show you line 824 of the
GFE (on a home refinancing mortgage) when
asked or doesn't show you YSP then find
another who is more honest and values your
business.
You will most
certainly see those figures on the final
closing statement called the HUD1 produced
by the title insurance company -- you might
as well see it up front so you can compare
home mortgage loans properly and avoid
changes at the last minute.
In conclusion
-- planning your initial statement to the
loan officer when doing your home mortgage
refinancing can not only save you money in
the end but it will also give you some peace
of mind that you are an informed borrower.
Does the above always apply to every single
mortgage loan, no -- the right loan is
different for everyone but knowing what you
know now will work for 90% of the mortgage
loans you'll be involved with. Consider
yourself deeply informed.
Quick Tip:
the best loan can be obtained from a home
mortgage refinancing lender who's local.
Also, these mortgage refinancing tips don't
apply to the reverse mortgage. Also, keeping
your loan amount below the 80% value limit
on your home can help you avoid mortgage
insurance better known as private mortgage
insurance.
