Wednesday, May 18, 2011
by Broderick Perkins
© 2010 DeadlineNews.Com
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Deadline Newsroom - At some point, housing consumers are going to have to get off their duffs, give their serve-it-to-me-on-a-silver-platter brains a workout and perform due diligence when shopping for a home mortgage.
Federal regulatory overhaul injected greater transparency in the mortgage market with new, easier-to-understand mortgage cost disclosure materials, but most consumers just don't bother to reap the benefits.
Not only is that foolish, it also costs money -- perhaps thousands of dollars in some cases.
The Real Estate Settlement Procedures Act (RESPA), effective January 1, 2010, mandated a new and improved Good Faith Estimate (GFE) to make it easier to understand and comparison shop for mortgage estimates, but 70 percent of homeowners chose a mortgage provider without shopping around, according to a study by online direct bank ING Direct.
"The Good Faith Estimate is one of the most crucial documents a homebuyer will receive before making the biggest purchase of their life," said Arkadi Kuhlmann, ING's president and CEO.
The study found consumers may not bother to shop around because the documents are still too complicated, but that's really not much of an excuse. Asking for help deciphering the documents doesn't take a college degree.
• More than one in three homeowners (36 percent) described the GFE as "complicated" or a "waste of time."
• Some homeowners described the GFE as being "simple" or "easy to understand," but 68 percent of homeowners surveyed were unable to correctly identify, for example, the purpose of the title services charge on the GFE.
• Fifty-three percent of homeowners spent 30 minutes or less reading and reviewing the GFE.
• One in ten (11 percent) homeowners never reviewed the document.
Home loan originators must give you the mandated GFE within three days of accepting your application.
The three-page GFE, provided by the mortgage broker or lender, shows the loan terms and the settlement charges you will pay if you decide to go forward with a given mortgage. It explains which charges can change before settlement and which charges must remain the same.
Consumers are supposed to use the document as indicated.
The GFE clearly states that consumers should "compare this GFE with other loan offers, so you can find the best loan." It also contains a shopping chart and worksheets to encourage you to shop around and compare several mortgage loans and the settlement costs of each.
Along with the GFE, you'll also receive the new "Shopping For Your Home Loan: HUD's Settlement Costs Booklet" a guidebook that walks you through the GFE as well as the new "Settlement Statement HUD-1."
At closing, the lender must provide borrowers with the HUD-1, the final line-by-line disclosure of mortgage and closing costs.
The HUD-1 is a complete and final list of all your charges and credits. In addition to the cost of the property, your down payment, the financed amount, your monthly payment, and loan terms, it includes your loan type, annual percentage rate (APR), points, commissions, yield spread premiums, originating fees and other loan costs as well as title and escrow fees, closing costs, tax and insurance payments, inspection fees, attorney fees, and information and costs related to rate locks and prepayment penalties -- the works.
You have the right under Real Estate Settlement Procedures Act (RESPA) to inspect the HUD-1 Settlement Statement before settlement occurs and you should.
You should set aside a full day to see your HUD-1 document at least a day before closing, so you have time to go over all costs, eliminate surprises and ask the lender or other professionals involved any questions that might arise.
Get help reading the documents. Ask your real estate agent, broker, lender or other professional to earn their commission by helping you get through the documents.
Some community and social groups as well as you local housing office may also provide assistance.
Samples of all the documents are available at HUD.gov. Use the search feature to find "Good Faith Estimate," "Shopping For Your Home Loan: HUD's Settlement Costs Booklet," and "Settlement Statement HUD-1," before you are in the thick of buying or selling a home in today's market.
Getting familiar with the documents now, can save you money and headaches later.
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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.
Under the DeadlineNews Group umbrella:
Perkins is managing editor of HomeAway.com's Gulf Coast Response Center.
Perkins was the first Examiner to cover three beats for the Examiner.com news service:
• National Real Estate Examiner
• National Consumer News Examiner
• National Offbeat News Examiner
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