Good Faith Estimate
When applying for a mortgage, your goal as a buyer is to get the best rate possible for your home. A lower rate equals a lower payment and the less you’ll pay in interest over the life of the loan. A Good Faith Estimate, or GFE, lists what you need to know about the mortgage, including the loan amount, the interest rate, the term, whether or not your loan has a prepayment penalty, and more.
Once you submit your information to a lender, they are required to submit a GFE to you within three days of receiving your application. However, it’s important to note that just because you receive a GFE does not mean you have to go with that particular lender for your loan.
To submit your application, you’ll need to provide the following information:
- Monthly income
- Social Security number
- Property address
- Estimated property value
- Amount of loan
- Any other information requested by the loan originator
The Importance of a Good Faith Estimate
Before buying a home, you have to understand the terms and conditions that come with the loan, including your monthly payment. It’s easy to let your emotions take over and want to do anything you can to get that house, but that could be a huge mistake down the line. A GFE allows you, in easy to understand terms, to see exactly what you are getting yourself into before signing the agreement.
The GFE is an “estimate,” meaning it can fluctuate slightly either more in your favor or not in your favor. However, certain areas are not allowed to fluctuate at all, such as the origination fee. Other areas, such as title insurance, might fluctuate up to 10 percent.
According to Consumer Finance, the following items cannot change from when you receive your GFE: the origination charge, your interest rate if you locked it, your adjusted origination charges if your interest rate is locked, and the transfer taxes. Items that can change (up to 10 percent) include title services, lender’s title insurance, owner’s title insurance, and government recording’s charges. Your initial escrow deposit, daily interest charges and homeowner’s insurance are also all subject to change.
How to Use a GFE in Your Favor
A GFE will allow you to comparison shop different lenders. While your real estate agent will most likely recommend their broker to you, that is not always the best way to go. By shopping around, you will ensure that you receive the best interest rate possible on your home loan.
A GFE obligates the lender to honor the terms that are disclosed. You can view the GFE form on HUD’s website and see for yourself how a GFE can help you when shopping for a house. When it comes time to close on your home, the actual settlement charges are compared to the GFE and must not vary by more than allowed by provisions of the Real Estate Settlement Procedures Act. If you think a lender has violated mortgage disclosure laws, you can call 1-202-708-0502 or send your complaint to:
Director, Office of RESPA and Interstate Land Sales
US Department of Housing and Urban Development
451 7th Street, SW
Washington, D.C. 20410