What is a Good Faith Estimate when applying for a mortgage?
Getting ready to buy a home? You'll soon receive lots of paperwork, including something called a Good Faith Estimate. I know paperwork isn't the most exciting part of house hunting, but this document plays a huge role in your home buying journey. Let me break it down for you in plain English.
Good Faith Estimate (GFE): A Good Faith Estimate (GFE) is a document provided by mortgage lenders that outlines the estimated costs and fees associated with obtaining a home loan. The estimate includes potential charges for items such as loan origination fees, appraisals, title insurance, and other closing costs that a borrower can expect to pay when finalizing their mortgage.
Components of a Good Faith Estimate
Your GFE contains several key sections that outline different costs. Let's look at what you'll find in each part:
Loan Origination Fees
These are the fees your lender charges for processing your loan. You'll see items like:
Points (each point equals 1% of your loan amount)
Processing fees
Application fees
Third-Party Fees
These costs go to other companies involved in your home purchase:
Home appraisal (usually $300-$700)
Credit report fees
Title insurance and search fees
Government Recording Charges
Your local government charges fees to record your new property ownership. These vary by location but typically range from $100-$400.
Escrow and Prepaid Items
You'll need to prepare for:
Property tax deposits
Homeowners insurance premiums
Prepaid interest charges
Understanding Your Rights
The law requires lenders to provide your GFE within three business days after receiving your loan application. You can - and should - compare GFEs from multiple lenders.
Cost changes fall into three categories:
Zero tolerance: These fees cannot increase
10% tolerance: These fees can increase up to 10%
No limit: These fees can change based on circumstances
GFE vs. Closing Disclosure
Your GFE estimates costs early in the process. The Closing Disclosure shows final numbers. You'll get the Closing Disclosure three days before closing. Compare both documents carefully - they should match closely.
Common Questions About GFEs
Is a GFE Binding?
While not completely binding, lenders must stick to certain tolerances for fee increases.
Can Costs Change?
Yes, but within limits. Some fees can't increase at all, while others have specific caps.
What if Actual Costs Are Much Higher?
Question any significant differences and ask your lender to explain the changes.
Tips for Using Your GFE Effectively
Read every section carefully
Ask questions about anything unclear
Watch for unusually high fees
Use it to negotiate better terms
Recent Changes and Updates
The mortgage industry now uses Loan Estimates instead of GFEs for most mortgages. This newer form makes comparing loans easier. Digital mortgage processing has streamlined the entire process, making it simpler to receive and review your estimates online.
Taking Action with Your Home Purchase
After receiving your GFE or Loan Estimate, review it carefully and ask questions. The team at Bellhaven Real Estate guides home buyers through every step of the mortgage process. We'll help you understand your estimates and make informed decisions about your home purchase.
Don't hesitate to reach out - we're here to make your home buying experience smooth and successful.