What is a Good Faith Estimate?

You are looking to buy a home and everyone is telling you to make sure and study the Good Faith Estimate. You may be wondering what is this document and why it is important.
This document (also called the GFE) is an estimate of the fees and charges associated with the loan you are applying for. By law every lender or broker is to provide you with this estimate within three business days of the loan application.



Why is the Good Faith Estimate Important?

Since it is a list of those fees and closing costs associated with the loan you have applied for, you can now use this document to compare one lender with another. Its like you plan to have a repair done to your car. You get a couple of estimates to get a idea of the costs and can make a decision as to which repair man you want to work with. This document gives you approximately the same thing. Only its those costs associated with getting a mortgage. Some of the fees are associated with the closing costs you will have when you buy that home.

Remember, this is just an estimate. So some items estimated might change when you get to the closing table. It is a standard form used to compare different quotes from different lenders. From there you make a decision as to which lender to want to go with. That is why you hear everyone say "study it" before you decide!

Now here's the tricky part, not all lenders use the same terms for the same items. So you will need to ask questions to be sure what they are estimating.

Another document the lender will give you is the Truth in Lending (TIL) form. This form discloses the annual percentage rate for your mortgage. It will also disclose the discount points, if any, mortgage insurance, and any other fees that affect the interest rate. Once again the figures on this form can change. If the rates of the mortgage have changed before closing, then this document will change.

Going back to the illustration of the car, if you didn't look at the estimate or didn't compare estimates, you leave yourself open to be taken advantage of. Not that their are not trustworthy repairmen out there, but you get the point. So get to know the Good Faith Estimate. Understand which quotes are assured or guaranteed and which are not.

A couple of things to take note of:

a loan officer cannot decline giving you a GFE
you also do NOT have to commit to that company in order to obtain a GFE
This document is designed to help you in making your decision. You cannot do that if you don't have the document before you make that decision.

Once you decide on a lender, keep that Good Faith Estimate and bring it to closing. Now compare it to your final statement of closing costs and see if the quotes remain the same or have changed. Question those things that have changed as to why. Of course not all changes mean someone is trying to pull one over on you. Some fees they can only estimate until they see the actual costs.

Now there is a difference between a lender's worksheet and a GFE. Some lenders will give you a workup of the approximate costs on a worksheet. This is not a Good Faith Estimate, so don't make a decision on which lender until you have seen the actual GFE. If you are just shopping rates, a worksheet is fine, but see the real thing before you make your final decision.