When you shop for a mortgage, you get an avalanche of government-required paperwork. Your main focus, however, should be on the Good Faith Estimate, or GFE. Here’s what to look for:
- The important terms of a home loan -- its annual percentage rate (APR), rate adjustments and features such as interest-only payments, balloon payments and prepayment penalties -- are disclosed front-and-center instead of being hidden in a sea of boilerplate.
- The shopping section -- a part of the GFE that you fill in when shopping for your mortgage -- is designed to help you compare several loan offers. Fill it in when you get your mortgage quotes.
- All fees are distilled into a bottom-line figure, so you it doesn’t matter if your fees are called “points,” “origination fees,” “processing and underwriting charges,” or “hamburgers.” All that matters is the total.
- Fees disclosed on the GFE must substantially match the amount that's actually charged. Some fees are limited to an increase of no more than 10%; others cannot increase at all from the estimate. Mortgage lenders that make mistakes on their disclosures will have to eat the difference.
When you close on your mortgage, your HUD-1 disclosure, also called your settlement statement, lists the fees that you pay and compares them to amounts disclosed on the GFE to make sure that the lender has disclosed properly.
Important! The law requires that the final closing statement match the most recent GFE issued to you, and new GFEs can be issued whenever there is a material change in your loan application. Understand also that the lender is not committed to a given rate and fee structure until you actually lock in your mortgage rate.
When you lock, you get a new GFE. You may get one if your property appraises for less than expected, if your credit changes substantially, if your employment status changes or you decide you want a 30-year fixed loan instead of a 5/1 adjustable-rate mortgage. All of these events constitute material changes and can trigger a new GFE. It's the last GFE issued before you close that the lender must honor.
Other forms unique to VA mortgages include the following:
- VA Amendatory Clause is added to your purchase agreement, must be signed by you and your seller, and states that if the property doesn’t appraise for at least the agreed-upon sales price, you are not obligated to go through with the purchase.
- Federal Collection Policy Notice says that the federal government can make your life difficult if you default on your VA loan – including (but not limited to) taking you to court, grabbing your retirement benefits and redirecting your tax refunds.
- Assumption Approval Clause states that “THIS LOAN IS NOT ASSUMABLE WITHOUT THE APPROVAL OF THE DEPARTMENT OF VETERANS AFFAIRS OR ITS AUTHORIZED AGENT.”
- Acceleration Clause warns that if you sell your home to someone who doesn’t / can’t assume your VA mortgage, the loan becomes immediately due and payable.
- Funding Fee Clause – lets you know, if you assume a VA mortgage, that a .50 point funding fee is due or will be added to the loan amount.
- Processing Fee Clause – advises anyone assuming a VA mortgage that they can be charged reasonable processing fees.
- Assumption Indemnity Clause – Buyers who take over a VA mortgage must agree to assume all of the obligations of the veteran under the terms of the instruments creating and securing the loan.