When you're shopping for a mortgage loan, it's sometimes hard to understand the jargon lenders use in the good-faith estimate explaining the costs and fees you'll pay when taking out a mortgage.
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When you apply for a mortgage, the lender has three days to give you a good-faith estimate of the fees and interest rate you'll pay, as well as other loan terms. Here are five tips for using the new three-page form to your advantage.
Know which fees can increase and by how much
In the past, lenders provided an estimate of the costs involved in getting your home loan, and if those costs rose by the time you closed on your home, tough luck. The good-faith estimate shows some fees the lender can't change, like the loan origination fee that you pay to get a certain interest rate (commonly called points) and transfer costs.The form also lists the charges that can increase by up to 10%, like some title company fees and local government recording fees. The lender must cover any increase over that amount.
Finally, the good-faith estimate lists the fees that can change without any limit, such as daily interest charges.
Look for answers to basic loan questions
In the summary section, lenders explain your loan's terms in simple language. Can your interest rate rise? If so, a lender must spell out how much the rate can jump and what your new payment would be if it does. Can the amount you owe the lender increase, even if you make your payments on time? If it can, a lender must show you the potential increase.
Evaluate the "tradeoffs" on a loan
In the new "tradeoff table," you can ask lenders to provide details on the tradeoffs you can make in choosing among home loans. If you'd like the same loan with lower settlement charges, how will the interest rate change? If you'd like a lower interest rate, how much will your settlement charges increase?
