We will be beginning Part 4 discussing one of the most important of the sections on page 1 of the Good Faith Estimate (GFE):  the SUMMARY OF YOUR LOAN. We will discuss this sections and how they relate to a purchase and a refinance transaction.

The SUMMARY OF YOUR LOAN section of the GFE starts to get into the meat and potatoes of the GFE and the loan you are applying for. There are nine specific details in the summary of your loan section and we will discuss each one specifically:

 

1)     “Your Initial loan amount” – This is a clear and accurate indication of the exact amount of loan you are applying for. It should be in a dollar amount and it should match the amount that you want to finance in your transaction whether it is a purchase or a refinance.

2)     “Your Loan Term” - The term of your loan related to the number of years that you have taken the loan out for. For Example, The loan may be based on a 30 year loan, a 15 year loan or any other term that you discuss with your lender. Sometimes during the application process lenders refer to the Term of the loan in number of months but for purposes of the GFE it is always determined in the number of years.

3)     “Your Initial Interest Rate” – This section of the GFE will be the exact initial interest rate that your lender is offering you for the loan that you are applying for. The interest rate is usually in a % and is not always rounded off. The number here must be exactly what you believe it should be. For example, if the lender said the rate would be 5.125% then it must show the same in that section. On a purchase or a refinance transaction there will be no difference in this section.

4)     “Your Initial monthly amount owed for amount owed for principal, interest and any mortgage insurance is” – This section shows you the exact amount of your initial monthly payments for your mortgage including the principle, the interest, and any mortgage insurance that you may be required to take out. THIS DOES NOT include any escrows that may be included in your monthly payment for payment of property taxes and homeowners insurance.

5)     “Can your interest rate rise?” – There are two possible answers for this and one of the answer boxes must be checked. Of course if the box NO is checked then the interest rate is a fixed rate loan and will remain there for the term of the entire loan. If the YES box is checked then the interest rate can rise and this section will tell you the maximum % the loan can change during the entire term. If also will detail the exact time frame that the first change will occur. This will usually be in a number of months or years. Whenever you have an interest rate that can rise during the term of the loan, this is known as an adjustable loan.

6)      “Even if you make your payments on time, can your loan balance rise?” –This section of the GFE has two possible answers as well. An answer of NO means that the principle balance of your initial loan in section 1 can NEVER increase over the amount that is detailed in section 1. If the YES box is checked, then the loan amount and balance can rise and the detail of the maximum amount that the loan can increase to must be detailed in this section. A mortgage that allows the loan balance to rise is commonly referred to as a Negative Amortization loan and should be looked at very carefully. A mortgage that has a balance that is increasing can have a tremendous effect on you when you go to sell your home.

7)      “Even if you make payments on time, can your monthly amount owed for principle, interest and any mortgage insurance rise?” – This section details the amount of dollars that you pay on your loan each month in principle and interest and whether the amount you pay each month can rise. Of course, this does not include property taxes or insurance. These are variables that can change yearly and the lender does not have control over. The lender does however have control over the term of the loan, and the payments on the loan. If a NO box is checked here, then the principle and interest and mortgage insurance are at a fixed rate for the term of the loan. This is a fixed rate loan, as we referred to in section 5. If the YES box is checked, then this is an adjustable loan and the detail will show you the exact dollar amount that can be increased the first year and the exact dollar amount that could be increased over the term of the loan. You should compare the dollar amount shown in this section to the dollar amount that was shown in section 4 which was your initial monthly payment. This will give you a good comparison of what your rate will start at and what the maximum potential monthly payment may in fact be if it were to be increased during the term of the loan.

8)     “Does your loan have a prepayment penalty?” – This section talks about whether if you were to pay off your loan in advanced or before the term is completed would you have a penalty or an additional fee that is due to the lender to pay off your loan early. If the NO box Is checked, then you have no prepayment penalty at all. If the YES box is checked, then you have a prepayment penalty and the exact dollar amount is detailed here in this section. This is important information for you to understand that there is a pre payment penalty and if you go to pay off your loan early you may have to pay this. This is dependent upon whether or not the prepayment penalty expires after a certain number of years. You should clearly ask your lender if you have a prepayment penalty when the prepayment penalty expires if at all.

9)     “Does your loan have a balloon payment” – First of all, what is a balloon payment? This means that the principle balance due on your loan can become due and payable at sometime before the term of your loan is complete. If the NO box is checked, then this would not be the case. If the YES box is checked, then the lender will disclose to you the exact amount of money that you will need to pay and when this will become due and payable. These are both important factors. People find that they can get a little bit lower of an interest rate if they agree to take a balloon payment in their loan. This works well for people who intend on paying off the loan before the term is complete. For example, you may say I am only going to stay in the house that I am financing for 5 more years , so in this case if you took a mortgage with a 5 year balloon payment, then it could work to your advantage if the interest rate were lower than that of a fixed rate mortgage. You can clearly see that if you take a balloon mortgage you must be cognizant of the fact that you will not be able to complete the entire term of the loan because it becomes due and payable before the term is complete.

 

The summary of the loan section Is extremely important and you need to make sure that you are doing a complete comparison between lenders and different loans to make sure that you are getting the best mortgage for your needs. It is best to discuss your personal circumstances with an experienced loan officer who can help you understand what options are best for you. On page three of the GFE, you will see a shopping cart section. This can be used to compare all of the sections in the SUMMARY OF YOUR LOAN section of the GFE.

 

At My Title Direct, we pride ourselves in being able to provide the most accurate up to date information available to anyone who is purchasing or refinancing their home. You can always get an instant quote for Title Insurance from our website at www.mytitledirect.com and we stand ready to answer your questions about any type of real estate transaction at any time. Stay tuned for part 4 of our series to follow soon.