Understanding a Good Faith Estimate
Lenders provide a good faith estimate (GFE) so that you, as a buyer, understand all the charges, fees, and terms associated with your home loan. The good faith estimate will also help you know how much you will need for closing. The GFE is a required document that you will receive within three days of your putting in your application, no matter where you get your home loan.
It’s An Estimate, Not a Contract
Keep in mind that a good faith estimate is just that – an estimate. It is not a contract and receiving a GFE does not mean that you are obligated to take the loan.
Here are some of the fees your GFE will show:
- Origination Charge: This is the lender’s charge for making the loan. This number is not an estimate but the actual charge.
- Mortgage Points: Points are equal to 1% of the loan amount. You can choose to pay points to lower your interest rate. This number is not an estimate.
- Other Services: These services include things such as a lawyer, title company, and insurance. These numbers are just an estimate and can go up or down.
- Government Recording Charges: Each state and local government charges a fee to document the loan. This charge is an estimate.
- Transfer Taxes: States and local governments can charge a tax to transfer property. This amount is not an estimate.
- Real Estate Taxes: The GFE will state the taxes as they are at the time of the loan. However, this amount can change at any time.
- Daily Mortgage Interest Charges: This is the amount of interest you pay for getting a loan mid-month rather than at a full cycle. This amount will depend on the day your close.
Good Faith Estimate Sections
Beginning in 2010, the Good Faith Estimate now has to explain the terms found within each section of the document. Here are the different sections found in the GFE:
- GFE Header: Contains your name, the property address, date, and lender information.
- Important Dates: Contains important dates such as how long the GFE is valid as well as the lock-in rate.
- Summary Of Your Loan: Contains the key terms of the loan such as the rate, the amount, the number of years, the monthly principal and interest, any prepayment penalties as well as the type of loan such as fixed-rate or ARM.
- Escrow Information: Used if an escrow account for taxes and homeowners insurance is included in your mortgage.
- Summary Of Settlement Charges: Let’s you know how much will be due at closing.
- Adjusted Origination Charges: This includes processing fees, underwriting fees, wire service fees, and any other lender charges, as well as discount points.
- Charge For All Other Settlement Services: These are other charges for services not provided by your lender.
- Prepaid Items: Some lenders require that you prepay a portion of your mortgage interest, real estate tax, or homeowner’s insurance premiums at closing. These would be listed in this section.
- The Last Page: The last page of your GFE is a summary page that makes it easy to compare different loans.
- Trade-Off Table: This table allows you to compare discount points.
- Shopping Chart: This chart allows you to compare different lending offers.
The best part about a GFE is that it allows you to shop around at different lenders to find the best loan for you. If you would like lender recommendations, contact us today.