Seattle Home Loans in 2010
There have been major overhauls in the mortgage industry over the past several years with loan programs going away, qualifications getting more restrictive and an increase in documentation and disclosures for borrowers. The US Department of Housing and Urban Development (HUD) has introduced new elements to the Real Estate Settlement Procedures Act (RESPA) many of which went into effect on January 1, 2010. Many people are wondering what kind of effects these new regulations will have on mortgage lending and real estate transactions.
The first and most noticeable changes are in the standard paperwork for any mortgage loan, specifically the Good Faith Estimate that is provided to any borrower as part of a loan application after January 1st. A Good Faith Estimate must be provided to any borrower within 3 days of making a loan application. What used to be 2 pages with line item detail has been expanded to 3 pages in an effort to more specifically identify loan related costs and compensation. It offers “tradeoffs” on page 3 which the loan originator/lender can choose to complete or not, identifying loan options with less fees/higher rate or higher fees/lower rate. It also offers a “shopping cart” for the borrower to fill in details from other lenders estimates to comparison shop. These additions are nice benefits to the borrower if they take the time to review them and fill in the comparison section.
A difficulty that any borrower may continue to run into is that any Good Faith Estimate is only binding for as long as identified by the loan originator/lender or if the rate is already locked. For example, if a borrower requests an estimate for a loan and receives it on a Tuesday but the rate has not yet been locked in (likely), comparison shops for several days and comes the loan originator to lock on Friday – it’s entirely possible that the rate/fee structure initially quoted could no longer be available. Origination costs/lender compensation CAN NOT change between a rate lock/acceptance by the borrower and settlement so a new Good Faith Estimate would need to be issued if there were changes in either the rate or fees from the initial estimate provided. This provides insurance to the borrower that there won’t be any suprises at closing with increased/undisclosed loan fees.
All loan originators/brokers/lenders/bankers are bound by HUD to use the new Good Faith Estimate for all new loan applications after January 1st. While it is different than previous versions and may be confusing to some borrowers it’s intention is to make the loan details more specifically identified and not allow for hidden costs/fees. One thing that most borrowers should expect is an increase in the amount of time it takes to complete a loan. The new regulations and disclosure timeframes have made it very difficult for loans to be completed in 30 days unless the borrower has already signed the application and submitted their income/asset documentation to the lender or loan originator. This is important to note as it effects the timelines for closing on purchases as well as the ability for a refinance to be completed within a 30 day rate “lock”.
As a borrower if you have any questions about the details on your Good Faith Estimate ask your loan originator directly. If you see unusual things on an estimate or areas that appear to be “missing” numbers or details it’s likely that the person issuing the GFE either improperly or incompletely filled it out. Beware of those lenders who seem to be lacking in disclosure of loan details and terms of the loan they are offerring. Feel free to share an estimate like that with another originator to verify it’s legitimacy. I encourage all borrowers to shop around and get quotes from at least three lenders before doing a refinance or purchase. More to follow this week in regards to current rates/mortgage market trends for 2010.
Michael Pollock is an Accredited Buyers Representative, member of the Seattle King County Association of Realtors and Licensed Loan Originator in Washington. He also works with clients in the Tacoma/Pierce County area – visit us at www.tacomapowersearch.com
I'm curious what I should expect to see on the Good Faith Estimate. As a First Time Home Buyer, I want to be very careful that I do not over extend myself and end up house poor. I'm hoping that it will not be possible to purchase if I cannot afford it anyway. (unapproved)
Hi Rick,
The new Good Faith Estimate will list out your loan amount, interest rate, monthly mortgage payment, origination charges, other settlement charges and total settlement charges. Unfortunately it does not break out these easily by line item as the previous version of the Good Faith Estimate did. What it also does not break out is “Total Monthly Payment including Property Taxes & Property Insurance. That’s important as the majority of borrowers pay towards those monthly and the new Good Faith Estimate does not provide that information. As a Loan Originator I think it will be helpful for a borrower to see the broken out line items and I am going to include that detailed information by providing both the new and old Good Faith Estimate form with any loan application package as an more detailed disclosure to my borrowers.
What no loan application or Good Faith Estimate shows is what your maximum qualification is for monthly payment and purchase price. A loan originator can quickly estimate that figure by calculating your Debt To Income ratio. That is calculated by taking your current monthly debts from a credit report and combining that figure with your proposed mortgage PITI (principal, interest, taxes, insurance) payment and dividing it by your gross monthly income. That percentage or ratio can not exceed 45% in most cases and is even lower for some loan programs. While this is a way to estimate the pre-approval amount the next step to insure potential loan approval is to run the loan scenario on an electronic underwriting system. That will take into account the Debt To Income ratio as well as other pertinent loan information such as loan amount vs. property value, mortgage insurance, borrower credit scores & history, assets and loan type.
The systems that have been put in place since the mortage market meltdown of the past several years will help to keep borrowers out of a position where their monthly payment exceeds a reasonable percentage of their income. While these processes will calculate your maximum approval amount it’s very important that you look at the monthly mortgage payment and whether or not you are comfortable with that payment or not. Just because you’re approved for a particular purchase price doesn’t mean you’ll be comfortable with the payment especially since you’ll likely have new expenses as a home owner. You as the borrower need to think about how much discretionary income you’d like to have after your required payment so you can do the things you’d like to do in life.
Feel free to contact me to go over this more in depth at (206) 399-1345
Hi Rick,
The new Good Faith Estimate will list out your loan amount, interest rate, monthly mortgage payment, origination charges, other settlement charges and total settlement charges. Unfortunately it does not break out these easily by line item as the previous version of the Good Faith Estimate did. What it also does not break out is “Total Monthly Payment including Property Taxes & Property Insurance. That’s important as the majority of borrowers pay towards those monthly and the new Good Faith Estimate does not provide that information. As a Loan Originator I think it will be helpful for a borrower to see the broken out line items and I am going to include that detailed information by providing both the new and old Good Faith Estimate form with any loan application package as an more detailed disclosure to my borrowers.
What no loan application or Good Faith Estimate shows is what your maximum qualification is for monthly payment and purchase price. A loan originator can quickly estimate that figure by calculating your Debt To Income ratio. That is calculated by taking your current monthly debts from a credit report and combining that figure with your proposed mortgage PITI (principal, interest, taxes, insurance) payment and dividing it by your gross monthly income. That percentage or ratio can not exceed 45% in most cases and is even lower for some loan programs. While this is a way to estimate the pre-approval amount the next step to insure potential loan approval is to run the loan scenario on an electronic underwriting system. That will take into account the Debt To Income ratio as well as other pertinent loan information such as loan amount vs. property value, mortgage insurance, borrower credit scores & history, assets and loan type.
The systems that have been put in place since the mortage market meltdown of the past several years will help to keep borrowers out of a position where their monthly payment exceeds a reasonable percentage of their income. While these processes will calculate your maximum approval amount it’s very important that you look at the monthly mortgage payment and whether or not you are comfortable with that payment or not. Just because you’re approved for a particular purchase price doesn’t mean you’ll be comfortable with the payment especially since you’ll likely have new expenses as a home owner. You as the borrower need to think about how much discretionary income you’d like to have after your required payment so you can do the things you’d like to do in life.
Feel free to contact me to go over this more in depth at (206) 399-1345
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