I have found that, although many people of heard of a “Good Faith Estimate”, very few know what it is and what it’s used for. Seeing as this document is actually pretty important, we’re going to take this article to help explain everything you need to know about the Good Faith Estimate.
So what is it and why is it so important?
The Good Faith Estimate (GFE) is a document where a lender (typically a bank, or any party lending money) uses their experience to estimate all of the closing costs associated with the loan. Most importantly it is a legally binding form that, once issued, obligates the lender to honor the figures they put on it.
What is needed to generate a Good Faith Estimate?
Producing a GFE requires six pieces of information: the borrower’s name, the property address, the borrower’s social security number to allow the lender to check the borrower’s credit, the borrower’s monthly income, the estimated property value, and the loan amount.
A lender requires a fair amount of information from you before they will generate a GFE since they have to have sufficient information about you and the property before the lender is ready to commit to a specific combination of interest rate and fees. Once the GFE has been generated the lender is only allowed to change the numbers on it if one of 6 pieces of information is materially different from what was originally provided.
What is a Good Faith Estimate used for?
Those in the early stages of shopping for a lender will only get is a summary of closing costs, as the GFE should be seen as a final confirmation of what was promised to you by the lender, not as a comparison tool.
The GFE will also have information regarding the rate lock duration and your rate lock options. Be aware that if you choose to lock the rate at a later date, the combination of rate and fees may change and a new GFE will be issued by the lender.
What are the fees on the Good Faith Estimate?
A lot of fees that appear on the GFE are known as 3rd party fees and are not controlled by the lender. They are best guesses (good faith estimates); if you want the exact numbers you should get them from the people/companies that are collecting the fees, such as your attorney, home inspector, title company, etc. On the other hand, the lender is accountable for correctly quoting the companies that it selects. An example of this is the appraisal fee; since the appraisal company is picked by the lender, the GFE must accurately reflect the appraisal fee.
What should you do with your Good Faith Estimate?
You should bring the original GFE to closing in order to compare the figures quoted to the amounts being charged. Your attorney will advise you of your rights if they don’t match.