Is a Mortgage Illustration a Mortgage Offer?

Sales Tools

Mortgage originators receive commission-based pay when they write loans, and like most salespeople, mortgage originators proactively seek out new clients. Many originators use mortgage illustrations as sales tools in order to quickly show prospective clients how a much a mortgage refinance might cost. Banks often provide loan originators with access to computer programs into which they can quickly enter hypothetical loan amounts and interest rates to provide clients with basic loan information. However, interest rates for mortgages change daily and many people have to pay high rates due to poor credit scores, whereas these illustrations are usually based upon best-case-scenario situations.

When you submit a mortgage application, your lender must provide you with a type of illustration known as a good faith estimate. By law, your lender must produce the GFE within three days of your application.

Prior to producing the GFE, the lender checks your credit score so the interest rate shown on the illustration reflects the interest rate that your credit score entitles you to. However, at this stage your lender has not yet appraised your home or verified your income, so the GFE represents a conditional offer but the fees involved are nothing more than an estimate of your total costs.

During the loan underwriting process you must provide your lender with your most recent paystubs, two year's of W2s and in some instances your last two years of tax returns. Additionally, your lender hires a state-certified home appraiser to determine the value of your home and conducts various checks to ensure that you own the home and have homeowners insurance on it. You receive the same loan terms as shown on the GFE if all of the information that you listed on your application matches the information that the lender uncovers during the application process and if interest rates remain unchanged.

Having underwritten the loan, your loan offer remains conditional until you actually close on your loan. Your lender can call your employer on the day of the loan closing to check that you are still gainfully employed before allowing you to close on the loan. A deterioration in your credit score just prior to closing can also cause your lender to cancel the application. Therefore, while a GFE represents a conditional offer, your mortgage terms are not set in stone until you actually receive your closing statement at the loan closing.