Monday, July 29, 2013

What Is a "Good Faith Estimate?"

Good Faith Estimate (GFE) is yet another of those terms getting tossed out there at house buying time that sounds like it means more than it appears. It sort of does. One main purpose of the GFE is so that a borrower can compare the cost of a loan from lender to lender.

You give your application and basic information to the lender or mortgage broker when you apply for a loan. Within three days, you must receive the GFE from the lender. It will provide you with cost information about your loan--the term, the interest rate, closing costs, escrow charges and the lender charges should you move forward with the loan.

Once you receive the GFE, you'll need to accept it, showing you want to proceed, before you're charged anything, except for a credit reporting fee. If you don't like what you see, you can refuse to accept it and head down the road to another lender. 

If the lender denies your application before the three days is up, it does not have to give you a GFE. It has up to a month to tell you why your application was turned down. You have two months to ask why in case you don't hear or didn't inquire right away.

After the GFE has been issued, the lender/broker can't change the amount in the origination fee box. And when the dust settles and the loan documents are ready for your signature, the costs to you can't have increased more than ten percent from the GFE. Remember--it's an estimate, not a hard bid.

The number of possible fees can be kind of eye-opening and they're too numerous to enumerate here. Examples are the origination fee, which your lender charges for the loan, plus appraisal fees, processing fees, underwriting charges, perhaps advance fees such as mortgage insurance premiums. You'll also see such fees as wire transfer fees, recording fees, document preparation fees, escrow charges, notary fees, and so on.

Your lender or broker should be happy to go over these with you. They vary by the type of loan.

One of the reforms instituted after the housing crash in 2007 was heightened regulation on GFE's. They've been around for a while, but those required in today's market are better and more accurate than before.