HOW TO GET A GOOD FAITH ESTIMATE April 29, 2009

When discussing a client’s refinance I usually go over a script on what to say to the mortgage brokers to get a GFE.  When you call the right type of lender you should only need to answer a few general questions about your income and credit in order to get a GFE.  Because a GFE is not binding until the borrower makes an official application (and the lender is able to verify their creditworthiness), it is not necessary for a borrower to give much information to get a GFE.  When shopping for a loan ask for a GFE but make sure the broker does not to run a credit report until you have decides to make an application.  You are shopping for a loan so if the broker can’t give you a GFE without running your credit report then you should call another lender.  Your lender will ask you about the following 3 items-loan term, loan type and loan amount.
 
1) LOAN TERM -the number of years that the borrower has to repay the loan is called the term.  The term can vary but most common is 30 and 15 year terms (although so lenders will allow you to do 10 or 20 or 40 years).  When looking at the term remember that the shorter the term the higher the monthly payments.  When looking at the 15 or 30 year mortgages the 30 year mortgage will have lower monthly payments while a 15 year mortgage will have higher payments which will save a substantial amount of interest over the life of the loan.  Another issue to look at is flexibility.  While a 15 year mortgage will normally have a lower rate (and higher payment) a 30 year mortgage allows the borrower to make lower payments.  Once taken a 15 year mortgage requires higher monthly payments which can’t be lowered.  A 30 year mortgage can be shortened to 15 years at the borrower’s option by making prepayments. Remember to weigh the interest rate savings of a lower rate on a 15 year mortgage term versus the payment flexibility of the 30 year mortgage term with lower monthly payments and the option to make prepayments.
 
2)   INTEREST RATE TYPE- FIXED or ADJUSTABLE RATE-While most borrowers appreciate the security of a fixed rate loan for some an adjustable rate mortgage can make sense. Whether to consider an adjustable rate will be determined by your estimate of how long you may keep the mortgage.  Fixed rate loans offer a principal and interest payment that remains constant.  Adjustable Rate Mortgages (ARMs) allow the interest rate to change periodically and are based on an index.  The index and change periods can vary greatly and take particular care to understand them before entering into an ARM.  Change dates can be as quick as monthly and as long as 7 years.  The shorter the change date the lower the initial rate but the risk is that over time the changing rates may be higher than a fixed rate.  The index can be a bank prime rate or US Treasury Bill rate or other published rate.  Homeowners who do not see themselves keeping their mortgages for a long period of time can save money using an ARM.  It is important to remember that an ARM can be tricky as many people who bet that they could refinance their ARMs (or whose plans to sell the home changed) are now stuck as falling property values make refinancing impossible.  Before taking an adjustable rate it is quite important to be clear on your goals and discuss with your attorney or accountant before approaching a lender.
 
3) LOAN AMOUNT – before starting your loan search try to determine if you are seeking to increase the amount you have borrowed.   Home Improvement, College Costs and Debt Consolidation are all reasons people seek to refinance and borrow more on their homes.  While any borrowing must be looked at from tax and financial perspectives it is often cheaper to borrow mortgage money than other types of loans and given the deductibility of mortgage interest this may be a good option for some homeowners.  But remember you have to pay it back. 

Steven Decker is a New York Personal Injury attorney specializing in New York real estate law , New York business law, and New York franchise law. You can visit his Law Firm Decker, Decker, Dito and Internicola website by clicking here, download his FREE New York Car Insurance book, or call him at 718-979-4300 or 1-800-310-5520 for a free case analysis.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.