When shopping for a mortgage one of the first things consumers are told to do is to get a Good Faith Estimate (GFE). In fact, federal law requires mortgage lenders give you a GFE within three days of your mortgage application. A GFE is a break down of the costs associated with purchasing a home or refinancing an existing mortgage.
Don’t get me wrong, a GFE is important, but consumers often forget the “E” means estimate and they also don’t understand that GFEs are only as good and accurate as the Loan Officer preparing it which is really the point I want to get across. One of the biggest mistakes consumers make when shopping for a mortgage is taking a GFE as gospel. To be blunt about it, GFEs don’t mean sh*t, especially given all the constant changes to underwriting guidelines.
There is absolutely nothing that prevents mortgage lenders from giving out low ball or inaccurate GFEs. I see them all the time. Just because a lender provides a GFE does not mean that is the actual loan you are going to get, nor does it mean it is accurate. It is extremely important that you understand that a GFE is NOT a commitment to lend money.
Why Do Lenders Give Out Low Ball GFEs?
Because that is what you want! Loan officers know that consumers are focused on the interest rate and costs associated with any given mortgage. This is America and everyone wants to feel like they got some super secret best deal – especially when it comes to mortgages. What is the point of giving you an accurate GFE if the guy down the street is just going to undercut it even if he has no chance or intention of actually getting you that mortgage? Since you are going to blindly go with whoever is cheapest, there is no real benefit to being accurate. In addition, sometimes many LOs simply are inexperienced and don’t know what they are doing which often leads to optimistic GFEs.
Over the next few days I will post on how to properly read a GFE when you actually get one as well as give you some information on how mortgages are priced. Understanding both of these topics are paramount to making sure the GFE you get from a lender is accurate. Otherwise, it ain’t worth the paper it is written on.
