Guest post by Tim Richmond, finance professional, 1st Tribal Lending
People diving into the modern real estate world are ambitious, mainly due to our fluctuating economy and evolving housing market. Acquiring a property is also on a financial scale unparalleled to many other purchases, and it’s imperative to get it right. Many people spend a large portion of their lives working and saving, all with the hopes of signing on the dotted line one day. It’s a big deal.
The reassuring news is that there are many resources available to prospective homeowners, many of which are underutilized or even unknown. A Good Faith Estimate, or “GFE”, is one of them. Provided by the lender, a GFE includes an itemized list of fees and costs associated with a mortgage. This helps prospective homeowners know exactly what they will be paying and allows you to find the home loan that fits your exact requirements without compromising your quality of life. Below are the ways that good faith estimates benefit the buyer, and how you can capitalize.
They unveil the hidden costs
It’s obvious that each and every lender wants to gain something from a loan agreement. It’s part of the business and it’s the way it is. Due to the competitive nature instilled in most facets of our economy, certain costs are often left out of a loan presentation to lure a higher percentage of customers. A significant benefit of Good Faith Estimates is that they help you, the potential homeowner, understand exactly what you’ll be paying for and why.
Not only will you receive an itemized list of associated loan costs, but you’ll obtain it within a matter of days. This is all thanks to the Real Estate Settle Procedures Act (RESPA), and includes charges ranging from hazard insurance premiums, wire transfer charges and escrow fees. Many people enter the housing market with naivety, assuming that a mortgage is simply paying a percentage of their house off each month. GFEs eliminate most, if not all, ambiguity when it comes to buyer finances.
They help people understand their financial stability
Part of getting a number of good faith estimates, and even if only one is received, is that a potential homeowner will get to see a realistic view of how they stack up financially for such a monumental purchase. A lender will take into account the applicant’s credit report, debt to income ratio and general financial situation. This helps a buyer get a feel of their financial stability, while simultaneously giving them an option to step back from the purchase and improve their circumstances over time. The more GFEs a person receives, the clearer the picture becomes.
Stepping over the line into a real estate purchase is a big decision, particularly for those transitioning from rental living. Home ownership is so much more multifaceted and wide-ranging where finances and responsibilities are concerned. Good faith estimates are an effective option for inexperienced investors or homebuyers to get an accurate measure of their finances. Buying a home is a thrilling and fun experience, but it’s still a numbers game.
They provide options and create healthy competition amongst lenders
Good faith estimates at base level provide buyers with plentiful options when it comes to a home loan. Within any economic niche, this type of selective purchasing power levels the playing field amongst providers and assists the buyer in their decision making. If buyers get to pick and choose, the loan providers naturally provide a better service and lack the ability to deceive with a faulty product.
You as a buyer should appreciate the way that GFEs open up your options. Getting an itemized plan of action from multiple sources can enable you to choose the most efficient option that suits your lifestyle, finances and future goals. This is so, so important when settling on this scale of a commitment.
There are many situations in life that allow a person to take a risk. Unfortunately, within real estate, situations are too significant to act flippantly or make rash decisions. The welcoming news is that there are resources like Good Faith Estimates out there that are in place to make the purchasing process more efficient and informed.
About Tim Richmond, 1st Tribal Lending
This article was written by Tim Richmond, a father and real estate professional. He helps people take the plunge into the real estate market and assists them in finding their dream home. When Tim’s not studying the housing market and global economy he writes for 1st Tribal Lending about Native American mortgages and home loans.
Note: This is a guest post; the views and opinions expressed are those of the author and do not necessarily reflect the opinion or position of Redfin.