Understanding a Good Faith Estimate - The GFE, short for Good Faith Estimate, shows the interest rate, term, loan amount, and all settlement costs on a particular loan. The items on the GFE can be divided into three major groups: Interest rate and points, fixed-dollar loan fees, and third-party charges. A dishonest loan provider can manipulate all of these figures. There is no legal liability for errors on the GFE.
It is important for borrowers to understand the good faith estimate because the fees listed are what they are being charged to close their loan transaction. Borrowers should have all fees explained to them by their loan officer and to challenge any fees they feel are unnecessary.
The 800 section of the GFE is what the lender, broker, appraisal fees are. These are the fees you will want to compare with differnet lenders and brokers. the 900, 1000, 1100, 1200, & 1300 are all third party fees. The 1100 section are the fees charged by the title company.
Federal law requires lenders and brokers to provide a written good faith estimate within three days after taking an application from a borrower.
On the GFE (Good Faith Estimate) you will notice some letters at the end of line 800: PFC, S, F, POC. PFC means Prepaid finance charge. These are the charges that are associated with calculating APR. S means Seller Paid. These are items that the seller will be paying at closing. The F means FHA allowable. These items are permitted by FHA. Lastly the POC stands for Paid Outside of Close. This means that these items will be paid for, generally, before close. Some common items that are paid outside of close would be appraisal fees, homeowners insurance premiums and homeowners association dues. On some GFE's these letters may simply be filled in after the dollar amounts of each fee.
In California, the Good Faith Estimate is also called the MLDS or Mortgage Loan Disclosure Statement, when produced by a mortgage broker rather than the direct lender. The statement will itemize which costs are from the broker and which are from other parties.
It is important to keep a copy of the original GFE your are shown, to compare it to the final closing statment before you sign your loan documents.
Items checked as pre paid (PFC) finance charges will affect the final APR of your mortgage.
Have each mortgage professional go over the Good Faith Estimates with you. Compare the items line by line. If you notice the cost of any item on a GFE significantly higher or lower than that of the same item on other GFE's, ask the loan officer to explain the difference. Some dishonest loan officers might "low ball" their settlement costs to gain your business.
Understand that a good faith estimate (GFE) is just that, only an estimate. Your costs at closing can vary from the amount on the GFE.
Sometimes the fees listed on the Good Faith Estimate can change before closing. Some reasons include-
- your mortgage broker may have to submit your loan application to a different lender, either to get a better rate or because the underwriter at the first lender didn't approve your loan. Different lenders have different fees
- if your appraisal is sent to appraisal review by the lender, some lenders charge a fee for that
- you decide to use a different loan program or a different loan amount
- you close earlier or later in the month than estimated
- you decide to use a different home owner's insurance company, policy, or deductible amount
Generally, other fees may vary a little as they are estimates (such as courier fees, which will rise as more packages are sent), but they should be pretty close.
A good faith estimate can inform you of the some or all of the costs necessary to complete a real estate transaction, but unforseen occurnaces such as title, real estate or lender issues may arise through no fault of your mortgage broker. While your mortgage broker is responsible for giving you a good faith estimate, it is not the responsibility of your mortgage broker to guarantee THIRD PARTY COSTS.
When can I see my Good Faith Estimate? - Many states require that certain disclosures, including the Good Faith Estimate, be mailed within 2 hrs of taking the application if its a refinance. On a purchase its required, again in some states, within 72 hrs of an accepted sales contract on a subject property.
The Good Faith Estimate is just that, an estimate, and is subject to change.
When you receive a Good Faith Estimate be sure to go over it carefully. You should understand all the charges and fees on the Estimate. If anything does not look riught contact your Mortgage Consultant immediately and discuss it with them.
Keep in mind that this is just an estimate. When shopping for a new loan, always keep in mind that this may not be what your final loan will end up as. Some lenders will write almost anything on a GFE just to get your business.
Is the good faith estimate accurate? - The Good Faith Estimate is a disclosure of all of the costs that are associated with the settlement of your mortgage loan. Loan officers are required to provide you with a good faith estimate within three days of applying for a mortgage loan.
Many mortgage consumers make the mistake of thinking the estimate is set in stone. There are simply too many numbers that will be juggled around throughout the loan process to know for certain what your costs will be. Most often the exact amount isn’t known until days or even hours before closing.
Most loan officers will do their level best to make sure that the good faith estimate they provide will be accurate. Some will even guarantee the amount. If the amount increases from what they quote, then they will eat the cost out of their own paycheck.
Always read everything you are handed with a fine tooth comb. Even mortgage professionals can make mistakes. Never be shy and always speak up if you are feeling uncomfortable about something. Remember, this is your loan.
If the parameters of your loan change during processing, ask your mortgage professional for a revised good faith estimate reflecting the changes. While they are obligated to do so anyway, this requirement may be overlooked.
The good faith estimate is just that, and estimate. The mortgage professional may need to increase your loan amount to cover certain costs associated with your loan. Your current payoff could come in higher than expected, and this will certainly change the GFE. It is not set in stone, until you sign the final HUD settlement statement at the closing table. Although it is not set in stone, it should not vary drastically from the original that you signed, and you should keep that in mind at the closing table.
Some unethical companies may deliberately mislead you on your Good Faith Estimate. They may show a rate or fees that vary drastically from the actual terms that show up on your loan documents. Or, they may provide you with disclosures that show you are getting a 30 year fixed loan, but the loan documents will be for an adjustable mortgage. They will do this because they figure that by the time you get to the signing table, you'll be so anxious to close your loan that you'll just sign anyway. This is sometimes referred to as a "table close". If a company tries to do this to you, you should not sign anything that you're not comfortable with. Don't be afraid to walk away. There are always other options. Just as in any industry, some people don't have your best interests in mind.