How to Compare Good Faith Estimates
When you apply for a mortgage, federal law requires that the lender present you with a good faith estimate of the loan's cost within three days. The estimate tells you the interest rate and closing costs, which include appraisal fees, underwriting fees and legal expenses. Applying for a loan doesn't commit you to take out the mortgage with that lender so there's no risk in applying to two or three lenders and comparing the good faith estimates.
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Instructions
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Apply for an identical loan with each lender you're interested in. You want to learn which lender offers the best deal; if you ask one lender for a 25-year adjustable-rate loan and the other for a 30-year fixed-rate mortgage, you're not going to get an accurate comparison.
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Compare the information from the two lenders. According to the U.S. Department of Housing and Urban Development, a good faith estimate will tell you the interest rate; the initial monthly payment; the "points" or prepaid interest you'll need to pay at closing to secure the quoted rate; and a list of fees and costs, including title insurance, appraisal fees and any government taxes and fees.
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Check out how long the estimate is good for. Good faith estimates, HUD states, include a statement for how long the lender will guarantee the fees and quoted interest rate; if you wait any longer than that to take out a loan, the rates and some of the charges could rise. Even if the lender agrees to "lock in" the rate, third-party fees--such as title insurance--could rise for reasons outside the lender's control.
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Write down the information from the different lenders and compare them. The estimate worksheet includes a "shopping list" where you can compare interest rates, monthly payments, and such factors as whether the interest rate can rise and whether there's a prepayment penalty. Using this information, you can decide which of the lenders is the best bet.
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Negotiate with a lender and see if you can bring some of the fees down. You won't be able to change third-party fees or taxes due on the transaction, reporter Terri Cullen states in "The Wall Street Journal," but the lender may negotiate on the loan-origination fee, which pays for processing your application.
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Tips & Warnings
Your lender also has to give you a Truth in Lending statement, which translates the combined closing costs and interest on the mortgage into a single annual interest rate. This can help you compare lenders who have great rates and high fees with lenders who have low fees and high rates.
In some cases, fees or interest rates will go up after you receive the estimate because the market has changed. In other cases, the Lending Tree website states, lenders make low-ball estimates and then raise the costs later. The website states that if this happens, there's little you can do as the law doesn't penalize lenders who understate your costs.
