Good Faith Estimates... need advice on a situation please

[meresal]

For those of you that have dealt with mortgage approval... We are building a house. Our closing is about 6-7 months out, but we have to have approval before the builder will break ground.

We have already been talking with the lender that our builder uses/referred us to, yes I am already very skeptical of using them , and he already knows the maximum we want to spend and what we want to be approved for. Well he sent me all of the documents that we need to sign and the GFE to sign, but here's what caught my eye. The GFE was not only about $20k less than what we wanted to be approved for, but $6k less than the house costs basic right now.

I wrote him back, pointing this out, and reminding him that if we get approved for that price, it won't even cover the price of the house. He said that things could be changed "along the way", but that he could factor a new GFE out for the correct amount if I wanted. I told him I would much rather sign a GFE for the amount we need, than one that is pretty much useless. So he sent the new one over for what I asked, and told me to sign the new one AND the original one, and send them both back with the documents.

Does this sound fishy to anyone else? I feel like we are going to have to pay a surprise "fee" at the closing for these "changes". He said they can be done along the way, but working for a bank has let me know, that most "changes", which require time, don't come free.

TIA.

We will also be getting pre-approved thru USAA. If we use the builder's lender, the builder will pay 2% of closing costs, which is the only reason we are ever humoring this mortgage company. I plan on comparing the final amounts once we get the numbers back from each.

 

[lucyandroger]

Is the amount on the actual loan application correct?

I don''t think it matters what is on the GFE because as its name suggests it''s just an estimate and does not bind the bank or buyer to anything. But then again, we didn''t have to sign our GFE. It was just basically an FYI, this is what your payments and fees will most likely look like.

This is what it says at the bottom of our GFE:

"This is not a commitment to lend. Current policy requires submission of a complete application including supporting documentation. Loan approval is subject to the borrower and the property meeting bank requirements. All information is estimated. Please remember products, terms, rates and fees are subject to change until you complete a loan application and lock your interest rate."

I would go with your gut on this one. Why do you need to sign the GFE in the first place?

 

[meresal]

Thank you for your reply and help L&R.

Our GFE says at the bottom, that signing is our acknowledgement of receipt of the booklet "Settlement Costs", and if applicable the Consumer Handbook on ARM Mortgages.
It also states at the top that the information provided is an estimate of the charges likely to incur and their approx estimated value at tim eof closing could differ. Much liek what yours stated, but you didn't have to sign.
-Since we haven't met with the lender in person yet, we have not received these things from him. Though my mom, who has sold some investment houses, sent me her Closing docs and booklets to look over.

As far as the amount for the loan approval, on all three of these documents:
HUD/VA Addendum to Residential Loan App, the Direct Endorsement App for a HUD/FHA-Insured Mortgage, and Uniform Residential Loan App... he has input the amount that is lower than the price of the house.

He has the estimated purchase price at about $2k less than the price of the house originally, and then the estimated loan amount (purchase price less "his" estimated down payment... we will be putting much more than $4k down) is for about $4k less than that.

Lets say the house to build is $200,000, but we told him that we are planning on putting $20k in upgrades, so need a max loan amount for $225,000. Well, our loan approval documents say that we are looking at a house with a purchase price of $197,000 and need a loan approval for $193,000.

It doesn't make sense? What would be the benefit in getting approved for less than we already KNOW we need?

 

[neatfreak]

It''s probably just procedural. We had to get a new GFE *every* time that we put in an offer on a house-as well as a new pre approval. So if you don''t know how much the house will cost in the end it really doesn''t matter. A GFE is just to estimate your fees anyway.

But I don''t know anything about building...my only experience is with already built homes.

But a GFE is just to disclose fees to you...so if you are worried might as well get the larger estimate I guess?

 

[lucyandroger]

Date: 10/6/2009 1:07:58 PM
Author: meresal
Thank you for your reply and help L&R.

Our GFE says at the bottom, that signing is our acknowledgement of receipt of the booklet ''Settlement Costs'', and if applicable the Consumer Handbook on ARM Mortgages.
It also states at the top that the information provided is an estimate of the charges likely to incur and their approx estimated value at tim eof closing could differ. Much liek what yours stated, but you didn''t have to sign.
-Since we haven''t met with the lender in person yet, we have not received these things from him. Though my mom, who has sold some investment houses, sent me her Closing docs and booklets to look over.

As far as the amount for the loan approval, on all three of these documents:
HUD/VA Addendum to Residential Loan App, the Direct Endorsement App for a HUD/FHA-Insured Mortgage, and Uniform Residential Loan App... he has input the amount that is lower than the price of the house.

He has the estimated purchase price at about $2k less than the price of the house originally, and then the estimated loan amount (purchase price less ''his'' estimated down payment... we will be putting much more than $4k down) is for about $4k less than that.

Lets say the house to build is $200,000, but we told him that we are planning on putting $20k in upgrades, so need a max loan amount for $225,000. Well, our loan approval documents say that we are looking at a house with a purchase price of $197,000 and need a loan approval for $193,000.

It doesn''t make sense? What would be the benefit in getting approved for less than we already KNOW we need?

What I highlighted is what I see as the real issue here. And your questions seem right on to me. It doesn''t make any sense.

Are you sure that you can be approved for the higher amount? I would definitely check with a few other lenders because something certainly seems fishy.

 

[meresal]

Date: 10/6/2009 1:50:20 PM
Author: lucyandroger

Date: 10/6/2009 1:07:58 PM
Author: meresal
Thank you for your reply and help L&R.

Our GFE says at the bottom, that signing is our acknowledgement of receipt of the booklet ''Settlement Costs'', and if applicable the Consumer Handbook on ARM Mortgages.
It also states at the top that the information provided is an estimate of the charges likely to incur and their approx estimated value at tim eof closing could differ. Much liek what yours stated, but you didn''t have to sign.
-Since we haven''t met with the lender in person yet, we have not received these things from him. Though my mom, who has sold some investment houses, sent me her Closing docs and booklets to look over.

As far as the amount for the loan approval, on all three of these documents:
HUD/VA Addendum to Residential Loan App, the Direct Endorsement App for a HUD/FHA-Insured Mortgage, and Uniform Residential Loan App... he has input the amount that is lower than the price of the house.

He has the estimated purchase price at about $2k less than the price of the house originally, and then the estimated loan amount (purchase price less ''his'' estimated down payment... we will be putting much more than $4k down) is for about $4k less than that.

Lets say the house to build is $200,000, but we told him that we are planning on putting $20k in upgrades, so need a max loan amount for $225,000. Well, our loan approval documents say that we are looking at a house with a purchase price of $197,000 and need a loan approval for $193,000.

It doesn''t make sense? What would be the benefit in getting approved for less than we already KNOW we need?

What I highlighted is what I see as the real issue here. And your questions seem right on to me. It doesn''t make any sense.

Are you sure that you can be approved for the higher amount? I would definitely check with a few other lenders because something certainly seems fishy.

We make plenty and our only expenses are our rent and food right now. Once we purchase the house, our only expenses would be mortgage, food, and insurance. We have no debt and both of our credit ratings are just below 800.

The lending agent, when we first spoke a few weeks ago, even said there shouldn''t be any problem getting what we need.

I sent him an email inquiring about the loan approval amounts. I don''t mind signing them, but I definitely want to know why they are so low before submitting anything. I don''t want to have to pay any surprise fees for increasing our approval amount later.

Thank you for your help!

 

[meresal]

Date: 10/6/2009 1:15:17 PM
Author: neatfreak
It''s probably just procedural. We had to get a new GFE *every* time that we put in an offer on a house-as well as a new pre approval. So if you don''t know how much the house will cost in the end it really doesn''t matter. A GFE is just to estimate your fees anyway.

But I don''t know anything about building...my only experience is with already built homes.

But a GFE is just to disclose fees to you...so if you are worried might as well get the larger estimate I guess?

Thank you for the reply. I originally had an issue with the GFE, which I understand is just an estimate, but I was weary when I needed to sign and return both of them. A little suspicious to me, but after lucy had me look into the documents more, I see that he needs the first one becuase all of the Loan App papers have that lower amount on them as well.

The real problem now is why the amount is so much lower than I know we will need to buy the house.

 

[neatfreak]

Date: 10/6/2009 2:46:02 PM
Author: meresal

Date: 10/6/2009 1:15:17 PM

Author: neatfreak

It''s probably just procedural. We had to get a new GFE *every* time that we put in an offer on a house-as well as a new pre approval. So if you don''t know how much the house will cost in the end it really doesn''t matter. A GFE is just to estimate your fees anyway.


But I don''t know anything about building...my only experience is with already built homes.


But a GFE is just to disclose fees to you...so if you are worried might as well get the larger estimate I guess?

Thank you for the reply. I originally had an issue with the GFE, which I understand is just an estimate, but I was weary when I needed to sign and return both of them. A little suspicious to me, but after lucy had me look into the documents more, I see that he needs the first one becuase all of the Loan App papers have that lower amount on them as well.

The real problem now is why the amount is so much lower than I know we will need to buy the house.

Yeah that''s a little weird. We had a bunch of GFE''s prepared and never got charged a fee...so unless you are getting a fee for each of them I''m not sure why they would benefit from doing a lower one.

 

[Italiahaircolor]

Are you both first time home buyers?

You might want to keep in mind that the way lending works right now if different than before the market fell off the cliff. Yes, it goes to what you make vs. what you spend...but lenders aren''t taking on the mortages they used to. You might not be approved for $225,000 for any number of reasons...the best you might get is the $197,000--which means you need a down payment, or the 20% of the cost. Most first time buyers are required to make a down payment now.

I would be sure to get the ins and outs before going forward.

 

[meresal]

Date: 10/6/2009 2:54:12 PM
Author: Italiahaircolor
Are you both first time home buyers?

You might want to keep in mind that the way lending works right now if different than before the market fell off the cliff. Yes, it goes to what you make vs. what you spend...but lenders aren''t taking on the mortages they used to. You might not be approved for $225,000 for any number of reasons...the best you might get is the $197,000--which means you need a down payment, or the 20% of the cost. Most first time buyers are required to make a down payment now.

I would be sure to get the ins and outs before going forward.

Italia, thank you. We are most definitely putting a down payment on the house. Not 20%, since we were originally hoping for a 85/15/5... but those a few and far between right now, especially for first time buyers. We will most likely put about 5-7.5% down. That amount lowered a bit since we found out we are expecting and will need a little more cash in the accounts for "just in case" purposes.

The thing is... we are building. We know the price of the house before even going in. We know exactly what we need, and what he has put on our loan app papers is far less than we need. For the last 2.5 years, we have been paying a rent that is $300/month more that what our mortgage payment will be. I don''t see there being any issue with getting the approval for the amount we need. It is definitely not at the "top" of our income, as far as what we can afford. So why even get approved for that amount when we know it won''t cover the price of the house. Does that make sense?

Maybe I''m just very confused about how loan approvals work... do they base your approval on what you submit? or do they just give you the higest amount anyway? (ie, we submit for $197k, and they come back and say we are approved up to $250k?)

 

[meresal]

Date: 10/6/2009 2:53:02 PM
Author: neatfreak

Date: 10/6/2009 2:46:02 PM
Author: meresal

Date: 10/6/2009 1:15:17 PM

Author: neatfreak

It''s probably just procedural. We had to get a new GFE *every* time that we put in an offer on a house-as well as a new pre approval. So if you don''t know how much the house will cost in the end it really doesn''t matter. A GFE is just to estimate your fees anyway.


But I don''t know anything about building...my only experience is with already built homes.


But a GFE is just to disclose fees to you...so if you are worried might as well get the larger estimate I guess?

Thank you for the reply. I originally had an issue with the GFE, which I understand is just an estimate, but I was weary when I needed to sign and return both of them. A little suspicious to me, but after lucy had me look into the documents more, I see that he needs the first one becuase all of the Loan App papers have that lower amount on them as well.

The real problem now is why the amount is so much lower than I know we will need to buy the house.

Yeah that''s a little weird. We had a bunch of GFE''s prepared and never got charged a fee...so unless you are getting a fee for each of them I''m not sure why they would benefit from doing a lower one.

Neat, We''ve gotten quite a few as well, and we aren''t being charged right now. It is jsut the what-if''s that you worry about surprising you at the end, you know? I just wish he was being more open about WHY all these amounts are not what we asked for, instead of just saying, "We can tweak things around as we go along."

 

[neatfreak]

Date: 10/6/2009 3:10:00 PM
Author: meresal

Date: 10/6/2009 2:53:02 PM

Author: neatfreak

Date: 10/6/2009 2:46:02 PM

Author: meresal

Date: 10/6/2009 1:15:17 PM


Author: neatfreak


It''s probably just procedural. We had to get a new GFE *every* time that we put in an offer on a house-as well as a new pre approval. So if you don''t know how much the house will cost in the end it really doesn''t matter. A GFE is just to estimate your fees anyway.



But I don''t know anything about building...my only experience is with already built homes.



But a GFE is just to disclose fees to you...so if you are worried might as well get the larger estimate I guess?

Thank you for the reply. I originally had an issue with the GFE, which I understand is just an estimate, but I was weary when I needed to sign and return both of them. A little suspicious to me, but after lucy had me look into the documents more, I see that he needs the first one becuase all of the Loan App papers have that lower amount on them as well.


The real problem now is why the amount is so much lower than I know we will need to buy the house.

Yeah that''s a little weird. We had a bunch of GFE''s prepared and never got charged a fee...so unless you are getting a fee for each of them I''m not sure why they would benefit from doing a lower one.

Neat, We''ve gotten quite a few as well, and we aren''t being charged right now. It is jsut the what-if''s that you worry about surprising you at the end, you know? I just wish he was being more open about WHY all these amounts are not what we asked for, instead of just saying, ''We can tweak things around as we go along.''

I''m pretty sure that they *can''t* charge for GFE''s...but they can charge for other things.

One other thought-I know you said that you can afford the bigger mortgage but the market is tight right now. I wonder if the broker/lender thinks you''ll only be approved for the smaller amount right now but once credit loosens up in a few months they can get you more? As in they are just getting you in the door right now and will up it later?

It is generally much harder for first time buyers to get credit for a new build rather than an existing house. So that might play in...

That''s the only thing I can think of...ultimately if you feel like they are being shady go with someone else!

 

[Italiahaircolor]

I believe Neatfreak is right, it is much harder to get an approval for a FTHB on a new build as opposed to a pre-exsisting home because there are many more fees and stipulations involved.

Now...

When I bought my first place, it was new build condo. I was required to have 20% down on it and then mortgaged the rest because I had no past history with a mortgage or even rent and I didn''t want to play a numbers game either on such a big purchase. In the end, although it was tough to come up with the cash, I didn''t want to risk my home over anything. I chose the simplest way to get from A to B for myself since I felt that it was what I understood best. By putting a full 20% down, I had instant equity in my place, which the bank saw as a bonus and approved the remaining mortgage.

If you were buying a place, say 3 years ago, you could have created a mortgage formula that worked for you and been approved. However, in the current mortgage climate, lenders are being more "thrifty"...because the fact is, if a buyer defaults on a home the bank is left holding the title....banks are in the money business, not in the home ownership business--it makes no sense for them to "own" a property, ergo they are being very strict on who gets what. Not to mention if you''re looking to mortgage nearly the entire place (5% down, right?) the bank will see you as potentially having no loss if you go belly up since their is no equity for them to recoup (I''m not saying you will, I assume you''re mature and responsible--but banks deal in facts and figures not in personalities).

Now, you say you''re going to be gaining $300 p/m with your new mortgage vs. renting. While this may be true on paper, new communities and new builds have unforeseen expenses that can eat money. You don''t know what your tax bracket on the place will be yet and so on. These are also things lenders consider when approving a home loan.

Basically, there could be any number of reasons why this broker is putting the numbers where he is and requesting what he is. I would suggest trying to come as close as possible to affording the standard 20% down on the place so that should (worse case senario) you only get approved for the $197,000 you can still buy the place. In the end, you''ll never really regret sinking money into the down payment, it is after all instant equity in the home and money in the bank so-to-speak.

Hope it works out for you.

 

[Mara]

If possible, you should talk to another broker or better yet someone direct like a bank. We went directly with a bank for our 2nd house and it was much easier just dealing directly with them and they don't get a commission so you don't pay like with a broker. Plus given the state of the economy we trusted the bank (where we do all our biz with) much more than a broker who might be doing whoknowswhat.

I know building is not the same as a straight outright house offer so I can't help you there, but when we got pre-approved it was with a house in mind and we got approved for THAT house amt minus our down, so basically the 'loan amt'. There was a little buffer but since we already knew what our down would be we just asked outright for that amt vs trying to see what we could get approved.

The GFE is just an estimate, to help you determine what your closing costs MIGHT be. They are usually fairly close but it's just an estimate, like work to be done on a car.

For the loan amt, when you say it's less than the house, that makes sense because of your down. Possibly this guy is just asking for a pre-approval that basically equals what you would get in a loan...he's not asking for more. Aka if the house was $250k and you put down $50k then he would ask for $200k loan approval amt. Ideally get a bit of a buffer like 5-10k but not sure how strict banks are now.

Lastly, did you ASK him outright why he put less on the paperwork? Maybe he's got a reason... I would def ask. I asked SO many questions when we were buying our house. I had a running daily email string with our bank agent. He loved me.

 

[meresal]

Italia- Thank you for your second post. I appreciate the time you took to share your thoughts. Obviously, 20% down would be ideal, but it is not an option at this point. We are having a child and can't afford to put that kind of cash into the house upfront anymore, especially when we will have no struggle making the montly payments with just 5-10% down. I know it causes more issues, but that is our situation, and it is what we have to work with.
The only problem is that down payment equity it isn't exactly "money in the bank". That money is no longer liquid, which if a surprise came about, we wouldn't be able to get our hands on that savings. You know?

I talked with the lender again this afternoon. He again stated that it could be changed as we go along, but still gave no specific reason for why it wasn't changed to begin with. To me it seems like less work for him, if he just changes it up front than changing it as we go

Anyway, the lower amount is just not ok with me, since this is a build we are putting ALOT of money down up front. I don't want to get 6 months down the road, and surprise... ohh, you aren't approved for the extra $20k. We're not talking a few thousand, we're talking $20k difference.

I called a friend that is building in the same area, and she told me that the same lender changed her approval for the amount she needed. She also informed me that with her pre approval, which is only $10k less than what we need (and hers is one income as opposed to our two income household), she has already been approved.
I work for a bank and read documents all day, and I know that words and number on paper are everything when it comes to a contract.

I have sent the lending agent an email requesting that the approval documents be changed to at least the purchase price of the house minus our minimum down payment, if he doesn't feel comfortable putting our maximum, or thinks it is unwise for some reason.

Hopefully he can have them all done by tomorrow and we can get the ball rolling by the end of the week.

Thank you everyone for your input. I really do appreciate it and the time you took to help me. i will definitely be getting more than one pre-approval so that I can compare. Thanks again!

 

[phoenixgirl]

I hope it all works out. I wonder what the reason for the lowered amount is. ????


Re what Italia said, in 2004 when we were engaged, DH and I bought a condo. We had to give proof of savings, income, etc. to get preapproved, and the lender suggested that only the one of us with the best credit apply for the loan to get a better rate. We were only approved for a modest amount which we could definitely afford based on our down payment and the rule of thumb for what to spend of your income.

In late 2006 when we bought our house, they didn''t check any of this info for the preapproval. They just asked us to estimate our income. When we asked how much we were approved for, they said, oh, whatever you need us to put down, we''ll say. We''ll approve you for a million dollars if you want. A million dollars! That was more than three times what we were looking to spend!

So I guess that I''m glad to hear that you can''t get approved for some ridiculous loan that you can''t afford any more, but now people who really can afford the loans are encountering silly red tape holdups.

Where is the happy medium?

 

[indecisive]

Date: 10/6/2009 11:57:29 AM
Author:meresal

We will also be getting pre-approved thru USAA.

I am not sure what type of loan you are doing but USAA will not do construction loans

We did a construction loan so we had to go with BB&T and have never been so disappointed with a company

I wish we could have gone with USAA!

 

[meresal]

Date: 10/8/2009 9:40:49 AM
Author: indecisive

Date: 10/6/2009 11:57:29 AM
Author:meresal

We will also be getting pre-approved thru USAA.

I am not sure what type of loan you are doing but USAA will not do construction loans

We did a construction loan so we had to go with BB&T and have never been so disappointed with a company

I wish we could have gone with USAA!

It''s just a mortgage approval for us. We are not in charge of any of the construction costs. Thanks for the head up though!

 

[meresal]

Date: 10/7/2009 6:24:50 PM
Author: phoenixgirl
I hope it all works out. I wonder what the reason for the lowered amount is. ????


Re what Italia said, in 2004 when we were engaged, DH and I bought a condo. We had to give proof of savings, income, etc. to get preapproved, and the lender suggested that only the one of us with the best credit apply for the loan to get a better rate. We were only approved for a modest amount which we could definitely afford based on our down payment and the rule of thumb for what to spend of your income.

In late 2006 when we bought our house, they didn''t check any of this info for the preapproval. They just asked us to estimate our income. When we asked how much we were approved for, they said, oh, whatever you need us to put down, we''ll say. We''ll approve you for a million dollars if you want. A million dollars! That was more than three times what we were looking to spend!

So I guess that I''m glad to hear that you can''t get approved for some ridiculous loan that you can''t afford any more, but now people who really can afford the loans are encountering silly red tape holdups.

Where is the happy medium?

Ohh, those lovely SIL''s. Lol.
I''m glad you had the reaction you did, because what''s funny, is watching re-runs of house hunters and other shows like that from 2004-2006, and these 5 person families that make about 100k a year, were being approved for $400k, and guess how much the houses they bought were??? Yup, $400k! Crazy!

I don''t mind stepping thru red tape, I have all the documents, I juse feel like the lenders are so jaded now, that it makes it that much harder. Ya know?


Update: The lender sent me all the documents corrected and we signed and sent them back this morning, so we''ll know something next week! Thank you for all of your help.

 

[Puppmom]

Meresal, glad it seems like you have everything worked out. No real advice here but I just wanted to chime it that we do all of our business with USAA and we have ZERO complaints. They are fantastic...especially with out mortgage. We didn''t have any of the problems we hear all of our friends gripe about.

Good luck!