A good faith estimate (GFE) is a form that will be provided to you by your lender. It lets you see every charge, fee, and term that has to do with your home loan. It also gives you an estimate of how much you will need to pay at closing so that you will be prepared with how much money you will need on that day. No matter who provides you with your loan, they are required to provide you with a GFE within three days of receiving your loan application.
The purpose of a GFE is to give you all the needed information about your loan. It can also be used to help you compare different loan offers. However, a good faith estimate is not a contract and does not require that you take that loan. You may be required to pay the cost of your credit report, which typically is less than $30.
Are The Costs Exactly What They Will Be On The Final Loan?
Your good faith estimate is just an estimate and will not completely reflect your actual loan. However, there are some aspects of the loan that will not change, others that can increase up to 10 percent, others that can increase with no limit, and still others that depend upon what you find from private sources. Let’s examine these fees.
- Origination Charge: This charge is what the lender will charge you to make the loan to you. This fee will remain as it is on the GFE.
- Points: You pay points to make your interest rate lower. You may also receive credits if you opt for a higher rate. This amount will not increase because you have locked down your interest rate.
- Required Services: Some services are chosen by your lender. Those that are chosen by your lender can go up by no more than 10 percent. Other services are chosen by you. Such services include an attorney, title services and insurance, and homeowner’s insurance. Depending upon how well you shop, this amount can vary quite a bit.
- Government Recording Charges: These are fees determined by your state and local government to document the loan. These charges can vary by up to 10%.
- Transfer Taxes: These are taxes levied by your state and local government to transfer the property from one owner to the other. This amount will not change from the GFE.
- Real Estate Taxes: Local property taxes may increase. There is no cap on the change of the estimate.
- Daily Mortgage Interest Charges: The daily interest charges are the amount that you would pay on the portion of your loan before the next monthly cycle. This changes depending upon the day that you close your loan.
Parts Of The Good Faith Estimate
Since 2010, the Good Faith Estimate consists of 3 pages of information explaining your mortgage and the terms. Here are the several different areas of the GFE and what they mean.
- GFE Header: Here you will find your name, the address of the property, and the date the GFE was prepared. It also has the contact information of the lender that prepared the GFE.
- Important Dates: This section has dates that are critical to your loan. One date is how long the GFE is valid. This protects a lender from offering you a loan and having you bring back the form two years later expecting the same deal. If you have locked in a rate, the GFE will also tell you the number of days this locked rate is good. If your rate is not locked, it tells you how many days prior to closing you must lock in the rate.
- Summary Of Your Loan: This is where you will find the key terms of the loan. You will see whether your loan is a fixed-rate or adjustable rate mortgage. It will tell you the amount the bank will lend to you, the number of years you will take out the loan, and the interest rate. It will also show you the amount of your monthly principal and interest at the beginning of the loan. If your interest rate is adjustable, this section will explain when it will be adjusted and how that will be calculated. Some loans have prepayment penalties. If yours does, how that will be handled can be found in this section. Finally, this section will let you know whether there is negative-amortization or balloon mortgage features on the loan.
- Escrow Information: If there was an escrow account included in your mortgage, this section will let you know. It will also tell you if you have to have an escrow to get the mortgage rate provided. Many loans, including FHA and conventional loans with more than 80% loan-to-value will require you to have an escrow account.
- Summary Of Settlement Charges: This will tell you what is going to be due at closing. It is your closing costs minus any credits plus any money needed for escrow.
- Adjusted Origination Charges: The origination charge is all of the lender fees including processing fees, underwriting fees, wire service fees, and any other lender-related charge. These fees are not itemized and are simply lumped together as one fee. This section also contains any discount points. Your lender can check one of three boxes. If the first box is checked, the lender is indicating that discount points were already included in the origination charge section. The second box indicates that a closing credit is being provided. The third box is checked if points are being used and the charge will be listed in dollars and cents.
- Charge For All Other Settlement Services: These charges are non-banking charges you will have to pay. Some of these services are provided for by the lender and some can be determined by you.
- Prepaid Items: If you have any prepaid mortgage interest, real estate tax, or homeowner’s insurance premiums due at closing, these will be listed here. These are here for your own understanding and are not part of the mortgage closing costs.
- The Last Page: The last page of your GFE explains everything you find previously. It helps you figure out how to compare loans and provides you a list of mortgage-related fees, letting you know if they can change and by how much.
- Trade-Off Table: This table will help you compare discount points. It will compare up to three different combinations of rates and points offered by your lender. The first column will be the loan you have discussed with your lender. The second column will show you receiving a credit. The third column will show you paying additional points in order to get a lower rate.
- Shopping Chart: This chart is provided so that you can compare different lending offers. The key details of your loan are listed and you can then add the information from other lenders to compare details in one easy-to-locate location.
How To Use Your GFE
Your GFE is a quote that you can use to shop around. Take your GFE to other lenders. Consider looking at various loan programs. With a GFE, you can accurately compare rates, fees, and terms.
As you shop around, be sure that the lender is really offering you the deal you want. Some lenders bring you in under the guise of one program, only to try to put you into something else. This is known as bait and switch. Never sign anything that doesn’t meet your needs.
