Mortgage lenders must issue a Good Faith Estimate disclosure within three business days once you apply for a mortgage. Application is defined as the submission of the following information relating to a request for a federally-regulated mortgage:
- Borrower's name
- Borrower's monthly income
- Borrower's Social Security number
- Property address (it can be TBD)
- Estimated property value
- Loan amount
- Any other information deemed necessary by the loan originator
However, many lenders will generate a GFE when you ask them for a mortgage quote, as long as you provide the above-listed information. Others prefer to give you a worksheet instead of a GFE. Keep in mind, however, that only a GFE obligates the lender to honor the terms disclosed.
You can view the Good Faith Estimate form on HUD's web site.
- The important terms of a home loan -- annual percentage rate (APR), rate adjustments and features such as interest-only payments, negative amortization and prepayment penalties -- are disclosed front-and-center instead of being hidden in a sea of boilerplate.
- There's a section that you fill in when shopping for your mortgage to make comparing mortgage quotes easier. The fees are totaled to make the costs of the loan more apparent.
- Finally, fees disclosed on the GFE must substantially match the amount that's actually charged. Some fees are limited to an increase of no more than 10%; others cannot increase at all from the estimate. Mortgage lenders that make mistakes on their disclosures have to eat the difference.
Mortgage lenders need accurate information
Since lenders are largely held to the amounts disclosed in their mortgage quotes, they need a lot of information from you to provide an accurate estimate. Even something as minimal as a 1-point difference in your credit score can cause a huge change in fees. The property address, value or sales price, down payment or amount of home equity, your Social Security number, your monthly income, the property type (condo, single-family home, manufactured housing) and use (primary residence, second home, rental) are all needed to come up with an interest rate and lender fees. If you are willing and able to provide such information, a lender is able and should be willing to issue you a GFE, not just a simple worksheet.
The final GFE is the one that counts
The law only requires that the final closing statement match the last GFE issued, and new GFEs can be issued whenever there is a material change in the application. For example, a lender is not committed to a given rate and fee structure until you actually lock in your mortgage rate. When you lock, you get a new GFE. Ditto if your property appraises for less than expected. Or, if your credit score changes, you get a new job or you decide you want a 30-year fixed loan instead of a 5/1 adjustable-rate mortgage. All these events constitute material changes and can trigger a new GFE. It's the last GFE issued before you close that the lender is held to.
Shopping for a mortgage
Get a few GFEs when comparing mortgage rates upfront, then use the Look Before You Lock before locking in your rate to make sure that your offer is competitive. Once you have a final GFE and lock your mortgage interest rate, your lender is fully committed to you, and there should be no surprises at the closing table.