If you are like most people, you do not have a lot of experience with comparing loan proposals from mortgage lenders.  Most people will receive a proposal of costs given by a loan officer, look at the bottom line figure, and assume these are all the costs.  Unfortunately, some loan officers count on a borrower’s inexperience and will show only a portion of the actual costs needed at closing.  This makes their costs look lower when in actuality they are only incomplete. 

Why do they do this?  Usually there are two main reasons this happens; you are dealing with an inexperienced loan officer, or an opportunistic loan officer that thinks it is fine to capitalize on the lack of experience of their customer.  Whole marketing campaigns have been designed to appeal to people that don’t know what they are doing and don’t have the time to learn about the process.  Our focus at Churchill is to help you understand your mortgage, not manipulate the information for our benefit.  That is just bad business.

Here is what you need to know.

Before January of 2010, loan officers would send out Good Faith Estimates (GFEs) to customers upon request, and sometimes they would send out multiple GFEs.  In 2010, the Department of Housing and Urban Development (HUD) mandated new restrictions for the sending of a GFE that made the GFE costs a contract as opposed to an actual estimate.  This means if a loan officer sends you a Good Faith Estimate and you do not have a property selected, they may be held to the costs shown on the GFE.  For example, you ask about a $100,000 home but end up buying a $170,000 home.  The costs to do the loan will be significantly higher on the $170,000 home, but because the loan officer gave a GFE, they may be forced to take a loss on the loan because costs were quoted on a $100,000 loan amount.  It is a very different world for loan officers because of this change, and therefore you will most likely receive a Loan Proposal of costs or a Transaction Summary of costs. 

When a GFE can be provided:  Most costs associated with purchasing your real estate are not controlled by the lender.  These include expenses such as attorney fees, title insurance, survey, recording fees, appraisal, and termite inspection.  These are costs which anyone will be required to pay when purchasing a home regardless of loan amount or lender.  All of these expenses are provided by independent professionals who are not affiliated with your prospective mortgage lender.  It can be very confusing if you compare these expenses item by item to estimates prepared by different lenders.  Based upon individual experience, each loan officer will offer their best estimate as to what each of these costs may be and there will be some differences between individual loan officers.  When your loan officer prepares the good faith estimate, they will also include an estimate for establishing your escrow account for the future payment of taxes, insurance, and mortgage insurance (often referred to as pre-paids).  Property taxes are set by the appropriate government taxing authority.  Unfortunately, property taxes are not negotiable.

Premiums for homeowners insurance are set by the insurance company you select.  All mortgage lenders will require that you pay your first year homeowners’ insurance plus two additional months at closing.  All lenders work off of a schedule based upon the time of year that you close in determining how much is placed into the escrow account at the time of closing to evaluate how many months of property taxes need to be set aside.  For this reason, your total costs for setting up your escrow accounts will vary between lenders.  The regulatory agencies (Fannie Mae) only require you to disclose 2 months property taxes for escrow.  But, depending on when your closing is scheduled, you may be required to pre-pay up to 11 months of property taxes.  Again, based upon individual experience, each loan officer will offer what they believe is a reasonable estimate of your monthly taxes and homeowners insurance.  

The most accurate method to compare loan proposals (in terms of closing expenses) is to review the specific fees in the proposal or from block one in the GFE, such as: Origination Fee, Underwriting Fees, Tax Service Fees, etc.  All lenders will offer a different set of scheduled fees and each has a tendency to establish unique names for each of these fees.  It is important to make sure you obtain all of these loan charges and fees.  You should also compare discount points charged by various lenders in block two if you are considering advance payment to reduce your interest rate.  Discount points may be paid at closing to reduce the interest rate of your loan over the term of your mortgage.

If you could use some good advice about choosing the right loan or comparing closing costs, we would be happy to assist you.  Call us at 1-888-562-6200 or Request A Call Back on our website http://www.churchillmortgage.com/ and we will contact you at a time that is convenient for you.