When you apply for a loan, your lender provides you with a Good Faith Estimate, also known as a GFE. Watch and learn why this is such an important document.
A Good Faith Estimate includes an itemized list of your estimated closing costs, monthly payments, and interest rate for the loan program you are considering. Your lender must send you this document within three days of your loan application.
A GFE is meant to give you basic information about the loan, help you better understand all the costs involved, and help you make a more informed decision.
When you receive your Good Faith Estimate from your lender, you’ll see several different sections:
1. Purpose: Explains why a GFE is important and how it can be used to shop around with multiple lenders.
2. Important dates: Says when the GFE expires and whether the interest rate is locked or floating.
3. Summary of your loan: Gives the initial loan amount, interest rate, monthly payment and loan term.
4. Escrow account information: Says if the lender will setup an escrow account to collect property taxes and homeowners insurance each month.
5. Summary of your settlement charges: Estimate of the total fees for closing on your property.
6. Understanding your estimated settlements charges: Summary of other closing costs, including lender required services.
7. Trade-off table: Helps you decide if you should pay higher closing costs to get a lower interest rate.
8. Shopping chart: Compare terms and total estimated settlement charges of loans side-by-side.
Tina, a mortgage banker, explains: “It’s very important to have the Good Faith Estimate upfront and also at closing so you can compare the two Good Faith Estimates and make sure there are no hidden fees or surprises at the end of the transaction. That’s the main thing that the Good Faith Estimate provides; just a sense of security and protection for the homeowner.”
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VIDEO TRANSCRIPT:
TINA: A good faith estimate should usually be provided upfront by the mortgage banker basically breaks down an estimate of what your closing cost will be, the lender fees, title and escrow fees, processing and underwriting fees, and appraisal fees. It also breaks down your mortgage interest rate, your term, and if any points are charged to you on the lender’s side so that way you know exactly what you’re getting into and how much each fee is.
JONATHAN: The lender is required to provide you with a good faith estimate within three days of an application. A good faith estimate’s going to provide you with an estimate of the fees for that transaction. A good faith estimate is something that when you’re comparing rates from one bank to another, certainly something that you want to factor in what the closing costs are going to be, what the title insurance, what the title fees, any kind of recording fees.
RONALD: As we update your tax and insurance information you’re going to receive an additional good faith estimate again breaking down the loan terms, the rate, the payment type.
TINA: It’s very important to have the good faith estimate upfront and also at closing so you can compare the two good faith estimates and make sure there are no hidden fees or surprises at the end of the transaction. That’s the main thing that the good faith estimate provides, just a sense of security and protection for the homeowner.