There are some changes coming to the way mortgage lenders do business. All of them have been put in place to protect the consumer (borrower). You will hear the new law referred to as RESPA Reform, that stands for Real Estate Settlement Procedures Act.
The purpose of RESPA Reform is to enhance the ability of the borrower to comparison shop, promote greater competition in pricing and better disclose key loan terms to customers. Until now, each lender used a different form to disclose what a borrower would have to pay for their mortgage loan or in other words disclose what the closing cost would be for their loan. Since no two lenders used the same form and no one held them accountable for exact numbers it was impossible for the consumer to shop for the best terms and rate for their home purchase.
Effective January 1, 2010 your lender must give you a Good Faith Estimate, GFE within 3 business days of your loan application. Application means you have given your lender your full name and the same for anyone else on the loan, your monthly income, social security number, specific property address of the home you want to purchase, estimated value of property and loan amount. No mortgage company can charge for the GFE but can charge reasonable cost for credit report.
Many buyers meet with a lender before ever starting their home search and I highly recommend this. There is no reason to start your home search until you know exactly what you can comfortably afford. While the lender should provide you information about the cost involved in buying a home they cannot be specific until they know the exact property you have chosen, the sales price, the interest rate etc. Interest rates changes every day and during volatile times (and we have been through many in the past months) they can change several times during the day.
The final step of this new law is the HUD statement. This is the final paper presented at the closing when you actually purchase your new home. You will see all of your charges listed and beside your actual number is the amount the lender gave you on you GFE,
This amount cannot be off at all for some categories such as origination fee and can only be off by 10% (higher or lower) for other charges. If, as you go through the buying process, any numbers change significantly the lender can issue a new GFE and you have 3 business days to review and approve.
Foe additional information visit www.hud.gov/respa
