The process of buying real estate is a financial decision that can influence the rest of someone’s life. It’s a big deal, and although there are mechanisms in place to assist people throughout the journey, there are many tough decisions that lead up to a closing date.
One specific way that prospective home buyers are aided is through good faith estimates (GFEs). Established by the Real Estate Settlement Procedures Act (RESPA), good faith estimates are in place to help people acquire and utilize the most efficient loan for their particular situation. This is critically important, as the scale of money involved with a real estate transaction is often overwhelming for those signing on the dotted line. When dealing with finances on this level, buyers want and need efficiency. Good faith estimates provide them with that as they can better analyze their options for home loans.
Below are the specific ways that good faith estimates benefit Americans looking to take a plunge in the real estate market, and why it matters.
GFEs limit surprises
When the typical homebuyer is looking for a house, the chance of them finding the best interest rate and loan situation comes down to options. Like anything else, the more options, the better chance of making the efficient choice. Additionally, there is less surprise if someone has all of the costs laid out before they make a decision. GFE’s directly limit ambiguity when it comes to the costs of a loan.
Oftentimes homebuyers walk into the process blind to the extent of financial obligation. Good faith estimates were established to protect the buyer from unlisted costs and responsibilities incurred when closing in on a property, and most notably, to avoid any unexpected financial obligations. The buyer should know exactly what the costs will be before agreeing to anything. Whether someone is applying for an HUD 184 home loan as a Native American or a first time home buyer applying as a recent graduate, the principle is the same. It just helps to know the details before the fact.
GFEs help you understand what you can afford
Too often potential home buyers enter the market without a full grasp of what their monthly costs will be as a result of a mortgage agreement. With a real estate purchase, it’s always important for a buyer to avoid compromising their quality of life. Acquiring a home is more complicated that simply paying the designated monthly percentage of the property cost. GFEs help eliminate this naivety and help buyers better understand what price range their situation falls within, and exactly how much of their income will go to the loan and associated fees each month.
Seeing a comprehensive breakdown of the exact monthly costs can help people decipher a realistic viewpoint of how their budget will be affected. Most people can only really get an accurate picture of their financial situation when looked at from a monthly perspective, and GFEs help paint it. If the monthly payments are higher than a budget can withstand, people can simply shop around for houses at a slightly lower asking price.
GFEs help you evaluate your credit & finances
Part of the good faith estimate process involves a lender analyzing an applicant’s credit report and financial status. Having finances assessed, especially by more than one lender, can help a buyer better evaluate their financial stability before committing to anything. If a buyer realizes during the good faith estimate process that their credit score is inflating their proposed interest rate, they could always reassess and come back six months later in a better position. This is an underrated benefit of GFEs.
A buyer’s dream can be realized much more efficiently because of good faith estimates, and they deserve credit. After someone applies for a loan, they are to receive an itemized list of all associated costs within three business days. This is efficiency at its finest. Many homeowners take advantage of good faith estimates, but on the other hand, many under appreciate the influence of them. People entering the market who are willing to put money on the table have leverage, and they should use it to the full extent.Posted by Jolenta Averill on