By Barbara Marquand
Mortgage Credit Problems Columnist

An important step in the home buying process is shopping to get the best deal on a mortgage, whether you have sterling credit or are checking out bad credit lenders. When a lender tells you how much a loan is going to cost, the certainty of that information all depends on the context, and it's critical that you know the difference between an informal quote and one that you can count on.

Lenders often use informal worksheets to calculate estimates of mortgage rates and closing costs for casual shoppers. This kind of penciling out of numbers helps give buyers a rough idea of how much they'll pay, and that's perfectly okay. In fact, you can get initial quotes on mortgage rates from bad credit lenders by filling out the form on this page.

But as a buyer you should know that your actual loan cost might differ from a quote, which carries no guarantee. To find out the true cost of a loan, you have to get a "Good Faith Estimate" from the lender. Under new federal regulations that took effect Jan. 1, 2010, the GFE must disclose the actual loan costs, and if those costs come in significantly higher than estimated, the lender must absorb the difference.

Getting Good Faith from Bad Credit Lenders

Lenders must provide GFEs once borrowers supply the key application information, such as a Social Security number, address, and property value. They can't refuse to give GFEs when customers request them, and a GFE doesn't obligate the borrower. In other words, just because you have a GFE from one lender, doesn't mean you can't take your business elsewhere.

The GFE spells out all the costs of the loan and explains which ones can't change at closing and which ones may fluctuate up to ten percent from the original estimate.

The U.S. Department of Housing and Urban and Development issued the new rules on GFEs in November 2008, and they became effective at the beginning of 2010.

What the Good Faith Estimate Includes:

• Length of the loan term
• Interest rate
• Whether there is a prepayment penalty
• Whether there is a balloon payment
• Total closing costs

Read the GFE line by line. Understanding the costs and terms of your loan will help prevent problems down the road.

Sources

http://www.hud.gov/ / http://www.washingtonpost.com/wp-dyn/content/article/2009/08/13/AR2009081302335.html?hpid=moreheadlines

Other Recommended New Home Loan Articles

• Ten Tips to Qualify for a New Home Loan
• Home buyer classes: How to educate yourself on financing and ownership
• How to make sure you can afford your mortgage