Changes That Make Mortgage Terms More Understandable

January - 15 - 2010 Author: admin Respond

If you’ve purchased a home over the past few years and applied for a mortgage loan, you probably remember how confusing the different terms and conditions in a loan agreement can be. Comparing loan costs between lenders has been nearly impossible for years because different lenders have different names for the same types of fees. With the financial industry struggling and under intense scrutiny to treat customers fairly, the mortgage process is undergoing an overhaul that should make mortgage documents more transparent and understandable.

With the new year came new laws that require estimates provided to potential borrowers by lenders to portray a more clear and accurate picture of the actual cost of the loan. Here are some of the ways good faith estimates are changing this year.

Standard Good Faith Estimate: Instead of each company having their own version of a good faith estimate that allows them to categorize (and sometimes hide) fees as they see fit, a standard estimate will be used across the industry so loan applicants are getting an apple-to-apple comparison. The estimate is three pages in length and has been standardized, meaning that while you may not understand what every line item on the estimate includes, you will at least be able to compare each line item to those from other lenders. The estimate must be provided to the applicant within three business days of the receipt of the loan application.

Consolidated Fees: There are some fees that are the sole discretion of the lender and in the past, lenders have labeled these fees in a variety of ways which was confusing to applicants. Starting this year, any fee that is charged directly by the lender will need to be grouped and filed under one heading called an origination fee. This will help eliminate many of the vague fees with fancy titles that are difficult to explain.

Fees Are Less Flexible: One of the other problems that some loan applicants have complained about in the past is that the actual cost of their loan ends up varying from the good faith estimate they received. The new laws prohibit lenders from charging an origination fee that differs from the fee disclosed on the estimate and most other costs associated with the loan must stay within 10 percent of the estimated amount. There are a few items, such as home owner’s insurance, that can vary in cost because they’re not dictated by the lender.

Elimination of the Title Insurance Scam: One of the costs that lenders have gotten away with charging in the past is a fee for title insurance. Title insurance is important, but from now on lenders will have to be upfront about the fact that borrowers are allowed to shop around for a better price on title insurance. Lenders have inflated this fee in the past and most borrowers were led to believe that it was an unavoidable cost of getting the loan.

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