This year, HUD revised the GFE form to address concerns voiced by subprime-era borrowers who alleged that some lenders quoted a low interest rate or low monthly payment while not disclosing critical loan features such as heavy prepayment penalties and terms under which the mortgage payment would jump sharply shortly after closing. The new GFE provides a clear summary of the key loan terms on the first page. On the third page, borrowers now get a loan “shopping chart” that walks them through the process of reviewing several GFEs. (Learn more about the new GFE and comparison shopping for home loans at www.hud.gov/respa).
Before comparing the loans you’ve been offered, look at all the GFEs to be certain they are based on loans with the same or similar down payment amount, origination fee, points (if any) and term (the loan’s time period in years). Also, know the FICO score each mortgage broker or loan representative used in preparing the quote; they should be virtually identical. Once you’ve made sure the loans you’re reviewing are similar, compare interest rates, other fees, and the overall monthly payment. Remember time is of the essence because interest rates change daily.
Your understanding of various loan qualities will be key when comparing mortgages. “We were mostly concerned about the interest rate,” says Anjuan. “We understood that you spend most of the mortgage paying off interest. The only other consideration that we had was the reputation of the lender. We wanted to work with a lender we had heard of, a bank that had been around for a long time.”
Taking control of their home loan shopping experience worked for the Simmonses. Their builder offered special rates and terms through the builder’s preferred lender, but even after negotiating, that lender couldn’t beat the deal the Simmonses had obtained elsewhere on their own. “It came down to numbers, and we just couldn’t get them to meet the numbers that we wanted,” Anjuan says. Their clarity regarding what they could afford put them in good stead. Neighbors have moved in and out of their subdivision, but the Simmonses have stayed put and have also been able to keep Aneika’s townhome as an investment property. For years to come, they anticipate being able to enjoy the fruits of their labor: a place for themselves and their three children, Koveil, 5, Kyric, 4, and Vicia, 2, to call home.
Tara-Nicholle Nelson is a real estate broker, an attorney, and an author of two real estate guides.