What is a Good Faith Estimate (GFE)
A good faith estimate (GFE) enables a mortgage consumer to compare offers, understand the actual cost of the loan, and make an informed decision when choosing a loan provider. The GFE lists necessary information about the terms of a mortgage loan which the lender is offering. All lenders are required to use the same standard loan estimate form, and receiving any estimate form is not an obligation to accept a mortgage loan.
The Real Estate Settlement Procedures Act requires the completion of a good faith estimate.
BREAKING DOWN Good Faith Estimate (GFE)
The good faith estimate (GFE) form is standardized across the industry to allow borrowers to compare costs between lenders. The document will include an itemized listing of all approximate amounts due at the closing of a mortgage. Closing fees are also known as settlement costs and include charges for attorneys, title search, recording and document stamps or taxes, survey fees, and other associated costs.
Since October 2015, the Loan Estimate form replaces the GFE for most kinds of mortgage loans. Borrowers applying for a home equity line of credit (HELOC), a manufactured housing loan which is not secured by real estate, or a loan through certain types of homebuyer assistance programs will not receive a GFE or a loan estimate but should receive a truth-in-lending disclosure.
The lender must provide a GFE to the borrower within three business days of receiving a completed loan application or other bank-required information. Borrowers may be charged a credit report fee before receiving a GFE but cannot be charged any additional fees. After a borrower receives the good faith estimate, they will indicate they wish to proceed with the mortgage loan from that particular financial institution.
Protecting Consumers in GFEs and Loan Estimates
There are legitimate reasons for discrepancies between the good faith estimate and the actual closing costs. For example, the lender may not know all the costs of closing services provided by third parties, which may be considered the hidden costs of owning a home. The loan estimate form is written in clear language and was designed to help consumers better understand the terms of the mortgage for which they are applying. Borrowers may shop around and acquire multiple estimates before choosing a loan or a lender.
Consumers should beware of unscrupulous lenders who may add their fees or charge excessive fees for administrative items such as wire transfers. The official standardized estimate forms provide information about the approximated costs of taxes and insurance and how the interest rate and payments may change in the future.