A Good Faith Estimate (GFE) details mortgage fees

A GFE shows approximately how much your home loan will cost.

If you're shopping for a home loan, you may have encountered a federally regulated document called a "Good Faith Estimate," which details the anticipated costs related to a specific loan you've been offered. The costs listed on the GFE typically include the lender's origination fee, points (if any), escrow or attorney's closing fees, title insurance, appraisal fee, and various other taxes and expenses. The exact list will vary from one state to another.

Lenders are required to deliver a GFE and Truth-in-Lending Statement to you within three days after you apply for a loan, though different lenders may use different definitions of that trigger event.

Estimated costs on GFE can change
The GFE is an estimate, not a guarantee. That means the costs can--and sometimes do--change dramatically from when your GFE is prepared until your transaction closes. For example, suppose your GFE listed a typical fee for a standard appraisal, but you decided to purchase an atypical or unusual property. In that case, the appraisal might be more expensive than the amount that was estimated. Likewise, such time-sensitive costs as prepaid interest and property taxes could change depending on when your transaction closes.

Even though the GFE is only an estimate, it can be a useful aid to comparison shop among loan products from different lenders. Be sure to compare the estimated costs for the same type of loan product. Ask the mortgage broker or loan officer to explain any items on the GFE that you don't understand.

Settlement statement details actual costs
When your home-buying transaction closes, your actual costs should be disclosed to you on a settlement statement or "HUD 1" form that's also regulated by the federal government. (HUD is an acronym for the U.S. Department of Housing and Urban Development.) The settlement statement might include additional costs that wouldn't be listed on the GFE. Examples include a real estate broker's commission or mortgage broker's yield spread premium. Any costs that you already paid typically would be denoted as "POC," which means "paid outside closing."

Your settlement statement might be prepared a day or two before closing or might not be ready until just a few hours ahead of time. If the final costs on your settlement statement are unexpectedly higher than the estimated costs that were detailed on the GFE, call the lender and request an explanation. You may wish to dispute any charges that escalated without good reason.