"All Things Edmonds" Blog

For the first time in 30 years, the U.S. Department of Housing and Urban Development (HUD) has revised its rules regarding disclosures that lenders and mortgage brokers must give to consumers who secure a home loan or refinance. These rule changes are meant to provide greater clarity to the actual cost of borrowing money. And, according to HUD, should save mortgage shoppers on average "$700 at the closing table."

Different people will disagree as to whether these changes are right. Certainly the intent is right. But nothing replaces a trusted Realtor to advise you on any home loan purchase or refinance. Good agents will always help you determine which loans are a good value and which are less of one.

Good Faith Estimate (GFE)
GFE's are intended to give mortgage shoppers an *estimate* of the cost of purchasing a mortgage from various lenders out there. The idea was to give them a ballpark figure (hence "Estimate") and consumers trusted that lenders were giving them relatively accurate figures  (hence the "Good Faith").  Presently, a GFE is actually not required to be given to consumers. I always insist that my clients be given one however, since it's not only their right, but helps them understand the cost of home loans from the various lender options in the market today.

The new HUD rules for will now require that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate that clearly discloses key loan terms and closing costs.

HUD-1 Settlement Statement
Upon closing a loan transaction (be it a new mortgage or a refinance of an existing one), lenders are required to produce a standard closing cost form commonly known as the "HUD-1" form. This form details the actual costs of the loan, as opposed to the estimated costs given in the GFE. 

Because the time lapse between the GFE and HUD-1 statement is typically 30-45 days, many borrowers can forget what they were told at the beginning of the process.  New HUD rules now stipulate a new HUD-1 form (3 pages long now) that requires lenders to show a side-by-side comparison of estimated costs (GFE) with actual costs (HUD-1). This is not a present requirement. This change can be found on the top half of page 3 of the new form.

What this means for you
These new HUD rules are meant to provide consumers with more information. Continue to shop as you have for a home loan and definitely continue to use the expertise of your trusted local real estate professional to help you understand what you're given.  Good lenders and mortgage brokers are probably already providing you with the information you need to make sound financial decisions when it comes to home loans.

If in doubt, remember that the customer is always right. Never feel intimidated or stupid to ask questions or to questions what you're told. If you do, you might want to consider finding a new mortgage lender.