Guest Post: Tim Richmond on Good Faith Estimates and Why They Stabilize Home Buying

Whether it’s the San Francisco real estate market or another one, buying a property is an intricate process that many people are unprepared to handle efficiently. A buyer that isn’t equipped with home buying knowledge isn’t at fault; it’s just that real estate is much more complicated than a down payment and monthly dues.

Know Before You Owe - Image Source: Consumer Financial Protection Bureau
Know Before You Owe – Image Source: Consumer Financial Protection Bureau

The first step in most people’s home buying journey is at the local mortgage grocery store. Many buyers wander aimlessly through the aisles, pretending they understand all the numbers and agent vernacular. Simultaneously, they’re often exclusively considering the lump sum down payment they’ll have to put on the table and the monthly dues they’ll owe their own bank account.

The good news is this is a pretty humorous visual! The bad news is that many homebuyers are naïve and don’t understand the depth of finances associated with the situation.  If a person or family doesn’t have the whole picture of how a property transaction will affect their life and finances, they won’t have an accurate idea of how it will hang on their life’s wall. This is a big deal.

The fortunate news is that while mortgages and the real estate market in general are complicated, there are resources available to simplify the process. One of those resources is a Good Faith Estimate, or GFE. GFEs make the home buying process more efficient because they accurately (for the most part!) portray the wide-ranging financial obligations associated with a mortgage.

Whether we’re talking about a San Francisco technology guru buying a townhome or a Native American buying a property on tribal land with an HUD 184 loan, the principle is the same. GFEs make a difference. This is how:

  1. They provide buyers the option of testing different providers on all costs associated with a home loan. The more loans a buyer applies for, the more GFEs they receive and the more efficient their decision can become because the best offers filter to the top.

  2. They provide accurate assessment of the buyer’s credit and financial stability, and how those circumstances affect their decision and interest rate. This up-front knowledge is a realistic way for buyers to look in the mirror and see where they stand financially. If there is an issue that is leading to a high interest rate, they then have the opportunity to step back for six months or a year to better their position.

  3. They level the playing field amongst lenders. When the RESPA (Real Estate Settlement Procedures Act) declared that GFEs were needed for the buyer within three days of a loan application, this created a more genuine mortgage marketplace. Rather than a lender adjusting their offer based on leverage or some other alternative motive, they are grounded in a numbers game. This benefits the buyer by creating healthy competition amongst providers.

There are many resources out there for buyers to take advantage of during the home buying process. The reality, though, is that many people simply don’t know about them. GFEs are one of the many to think about.

Author: Tim Richmond writes about the housing market and Native American mortgages.

 

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