Good Faith Estimates
GET A COPY OF THE GOOD FAITH ESTIMATE EARLY
It’s amazing what folks will try to get away with, if they believe that no one is watching. I have always believed that a home buyer’s first step in the home buying process should be making contact with an experienced buyer’s agent before doing ANYTHING, except perhaps looking at some homes for sale on the Internet, of course, where they fill find Homefinders.com. Anything else, until they have an experienced agent to advise them, can get them on the wrong track. Advice from friends and relatives is fine, but their real estate experience is usually limited to one or two or at most three transaction in a life time. Real estate agents and brokers, on the other hand, have the experience of many transactions. The more transactions, the more experience, the better advice for a buyer, especially a first time home buyer. If an agent has not closed many transactions, they can rely on their broker for the needed guidance.
Homefinders.com has a new first time Maryland home buyer client looking for a home in the “up to $500,000″ price range. A very nice lady who is a new physician (magic word), with no money (doesn’t matter, she’s a physician), who wants to buy a home in Maryland to live in for about 2 years and then sell. She will be moving to Virginia at that time to join a physician group and be in private practice (which is why it doesn’t matter that she has no money).
I love physician buyers because local lenders love physician buyers. Even fresh out of medical residency, or medical school, their income is on a steep upward curve. Their credit is, so far, always good. They are devoted to their work and usually quite smart when previewing homes. Since we are Maryland buyer’s agents, we can help evaluate the homes and give her the benefit of our experience in value, general condition, transportation alternatives, etc. This is important because, for the area of her search, her price range is modest. $500,000 doesn’t buy very much home in Silver Spring. But, there are some nice areas and our agent knows right where to take her. She will have a home inspection, Homefinders.com will pay for that. She’ll also have a one year home warranty. So, she’ll be O.K. for the first year. Our agents are tigers when it comes to home inspection repairs. So, our buyer should be O.K. for two years. Then we’ll sell the Silver Spring home for her and sell her one in Virginia.
However, this lady has been “doing her own research”, which means she has gotten off track with the possible financing of her home purchase. Someone, friend or family advised that she visit her local depository bank because “since she has an account, they will give her a good interest rate”. One would think that one of the largest bank/mortgage companies in this area would be fair with their depositors, especially one who is a professional on an upward earnings track. Unfortunately, the loan officer that she met with and who took her loan application, must have thought she was an easy mark because he didn’t do her any favors.
I’ve always believed that home buyers who were represented by an experienced buyer’s agent when they made loan application were given better quotes for terms and interest rates than one who was on their own. Same thing with visiting new home builders. In fact, I’ve had buyer / clients comment that they got much better treatment when we visited the new home site together than when they went into a model home alone. They said that they got better offers for upgrades, incentives, etc. with a buyer’s agent than without. Of course, that is with the larger builders, not smaller or niche builders. Small builders see the agent’s fee as something right out of their pocket. It may be.
Our new buyer asked if I would review the Good Faith Estimate from the lender and she e-mail it to me. I was appalled. Some of the negative features of the loan were:
The loan the loan officer wrote the GFE on is a 5/1 Interest Only ARM 80/20 with a PREPAY PENALTY.
The interest is 1/4 to 3/8% high for our market.
Fees include: Application fee $395 in addition to the usual Doc. Prep and Underwriting Fee.
Transfer and Recordation Taxes were understated by approx. $2,000
Survey was underestimated by $100
Hazard insurance was underestimated by approx. $600
County RE taxes were underestimated by approx. $640
There was no $$ amount or percentage showing for pre-payment penalty.
Finally, the GFE included a $12,000 seller contribution. I don’t believe that a lender should be writing a GFE relying on a $12,000 seller contribution. There is no assurance that the buyer will be falling in love with a home where a $12,000 seller contribution is possible, likely or even feasible. What this amounts to is an estimate that is $12,000 LOW. It makes the lender look good to show a GFE that requires only $800 closing costs from the buyer when they are, in fact, $12,800. But, it isn’t accurate.
We’ll work it out. I have her speaking with a lender who will give her an accurate GFE and a better interest rate and NO PRE-PAYMENT PENALTY. This is a particularly irksome feature of this loan because the buyer intends to own this home for no more than 2 years, while she works for the government for 2 years, then sell it when she moves to Virginia to join a private group practice. Unless our market starts to improve dramatically and turns around before she is ready to move, she could be faced with owing more than she can sell the house for in 2 years.
So, for Active Rain folks who believe that a home buyers first visit should be with a lender and not a buyer’s agent, my experience is just the opposite. Get a good experienced buyer’s agent to work with FIRST. We can qualify sufficiently to tour a few homes. We can even get a preliminary credit report to make sure the buyer is credit worthy. In the case of our new physician buyer, her credit is excellent. She has about $10,000 and a VERY bright future.
We’ll find her a good home in Silver Spring for her money and make sure that she is treated well by a lender too. That’s our job.
Silver Spring, Maryland has some lovely older homes in the $500,000 price range. Silver Spring Map
