The Good Faith Estimate, also known as a GFE, shows the interest rate, term, loan amount, and all settlement costs on a particular loan.
The Good Faith Estimate is divided up into several categories: The loan fees, the Title and closing fees, prepaid interest and fees and reserves for the borrower’s escrow account.
The 800 section of the GFE are the loan fees, including fees actually collected and retained by the lender as well as fees paid to third parties such as the appraiser. These are the fees you will want to compare with different lenders and brokers.
The 1100 section are the fees charged by the title company.
The 1200 section are third party fees paid to governmental agencies in connection with the loan and real estate purchase.
The 1300 section are fees paid to any necessary third parties, such as inspectors.
The 900 section fees are interest from and including the day of closing to the end of the month, any upfront mortgage insurance required, the first year of homeowners insurance premium that will be paid to the borrower’s insurance company at closing.
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.
It is important to keep a copy of the original GFE you are shown, to compare it to the final closing statement before you sign your loan documents.
Items checked as pre paid (PFC) finance charges will affect the final APR of your mortgage.
Federal law requires lenders and brokers to provide a written Good Faith Estimate within three days after taking an application associated with a property from a borrower.
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.
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
- If you decide to use a different loan program or a different loan amount
- If you close earlier or later in the month than estimated
- If 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.
In some states, if there are changes to the initial estimate but before closing, new GFE’s are required to be sent out prior to closing.
A Good Faith Estimate can inform you of the some or all of the costs necessary to complete a real estate transaction, but changes 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.
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 Good Faith Estimate also discloses the interest rate on the loan, the approximate monthly payment and the amount the borrower will need to bring to closing. Some sellers pay some or all of the borrowers closing costs. These amounts are also show on a Good Faith Estimate.
Understand that a Good Faith Estimate (GFE) is just that, only an estimate. Your costs at closing and the monthly payment can vary from the amount on the GFE.
Good Faith Estimate documents with unrealistically low figures are a common tactic used by less scrupulous mortgage companies to “bait and switch” borrowers by locking them into a loan process with the promise of abnormally low rates and fees, only to change the deal at the last moment, often at the closing table itself. Be sure to check out who you are working with and make sure they are reputable.
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