Good Faith Estimate
What is 'Good Faith Estimate'
A good faith estimate (GFE) is a form that lists basic information about the terms of a reverse mortgage loan offer by a lender. A good faith estimate is required by the Real Estate Settlement Procedures Act. The form is standardized across the industry to allow borrowers to compare costs between lenders, but actual figures may vary from the original estimate. Since October 2015, a form called the Loan Estimate replaced the GFE for most other kinds of mortgage loans. Borrowers applying for a HELOC, a manufactured housing loan that 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.
BREAKING DOWN 'Good Faith Estimate'
A good faith estimate enables a mortgage consumer to compare offers, understand the actual cost of the loan, and make an informed decision when choosing a loan. The lender must provide a GFE within three business days of receiving a loan application or other required information. Borrowers may be charged a credit report fee before receiving a GFE but cannot be charged any other fees until receiving the GFE then indicating they wish to proceed with the mortgage loan.
Consumer protection in GFEs and loan estimates
There are legitimate reasons for discrepancies between the estimate and the actual cost. 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. Consumers should beware of unscrupulous lenders who may add their own fees or charge excessive fees for administrative items such as wire transfers. In the official estimate forms, information is provided about the estimated costs of taxes and insurance and how the interest rate and payments may change in the future. The forms indicate if the loan has special a prepayment penalty or increases the mortgage loan balance even if payments are made on time (negative amortization). If a loan has a negative amortization feature, it appears in the description of the loan product. The loan estimate form uses clear language and was designed to help consumers better understand the terms of the mortgage for which they are applying. All lenders are required to use the same standard loan estimate form. Receiving any estimate form is not an obligation to accept a mortgage loan. Borrowers may shop around and acquire multiple estimates before choosing a loan or a lender.