One of the most important things that every veteran should know is how to evaluate a Good Faith Estimate or GFE. A good faith estimate is not just a verbal quote of how much you are going to pay but it is actually a document required by the Real Estate Settlement Procedures Act (RESPA).
If you are applying for a loan, the lender or broker should provide you a written estimate within 72 hours after applying for a VA loan.
Don’t get confused if you get multiple GFEs showing different bottom line totals. In most cases, you will receive a preliminary GFE and later, a “Final” GFE after the lender as approved the loan.
Be aware that every bank or mortgage broker will estimate costs differently but it is critical you understand what fees are stated, and whether you are being charged correctly.
Also, remember that a GFE is just an estimate – this is your loan officer’s best guess on how much it’s going to cost you to close your loan.
To make things easier, let’s breakdown the GFE into two categories: lender or broker-associated costs and other costs.
Lender or Broker-Associated Costs – The costs under this category should be more or less accurate. This is basically how much the lender or broker asks you to pay to process your VA loan application. These costs should include but are not limited to: loan origination fees, loan discounts, appraisal fees, credit reports, lender inspection fees, any tax-related service fees, processing fees, underwriting fees, and wire transfer fees. See VA allowable charges for a complete listing of acceptable loan fees.
Other costs – Aside from the lender and mortgage broker, there are also other entities involved in your VA loan application procedure. These bodies require a certain amount to be paid in order to complete your application. Some examples of these costs are insurance premiums, VA Funding Fee, title charges, escrow fees, transfer charges, and any additional settlement charges.
How exactly do you make use of this information?
We recommend you focus your efforts on interest rate AND lender charges because these are the only variables the bank actually controls. All other charges such as taxes, home owners insurance, settlement fees, and escrows will vary dramatically depending on the institution that prepares the GFE.
In some cases, your bank or VA mortgage broker won’t even take the time to quote these third party fees. So, if you get a GFE with very low costs take a second look at what’s actually being charged. You may be surprised to learn your VA lender has omitted 50% of the required information.
Surprisingly, the highest costing GFE can often be the best deal! If your VA lender did a great job, your GFE should be complete. But be aware, this may also translate to a higher bottom line when you compare to other “incomplete GFE’s. A completed GFE will include: all escrows, taxes, home owners insurance. This is also a good indicator that your working with a VA lender that has your best interest at hand and does quality work. Don’t deal with VA lenders that can’t provide accurate documents. That’s the best advice I can give.
In addition to your GFE, and before you make your final decision, ask your VA lender for a performance guarantee and make sure they put it in writing. What is a performance guarantee you ask? This is a document that your VA lender provides guaranteeing your costs on the loan. It will also guarantee your interest rate should you choose to lock the VA loan.
By obtaining a “completed” GFE and performance guarantee you can rest assured your homework is done and your ready to select a VA lender.
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