Good Faith Estimate
 
 

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Good Faith Estimate
A good faith estimate, referred to as a GFE, must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA). The estimate must include an itemized list of fees and costs associated with the loan and must be provided within three business days of applying for a loan. Before any interest rate and fees can be committed by a direct lender or mortgage broker, a Good Faith Estimate must be provided and signed by the customer.

These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges.

A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.

The good faith estimate is only an estimate. Don't count on the final figures to come out exactly the same. To see the "Good Faith Estimate" off by $1,000 is not the norm but it does happen. Lets just hope the figures were off in your favor. In some cases the maximum charges for the items listed on the Good Faith Form are used and you have a pleasant surprise at closing.

When you apply for a mortgage, the government requires your lender to give you a “Good Faith Estimate” (GFE) within three days of your application. This document sets out all the costs associated with the mortgage, and most experts recommend against the home purchaser from committing to a loan before seeing it. These charges can vary from company to company.

A GFE is also helpful because it allows you to compare the real costs of competing mortgage offers. However, it can be tricky to understand  because different lenders list the same costs in different ways. The costs may also be incomplete or inaccurate. So, it pays to take a close look at your Good Faith Estimate when it arrives. Go over all figures and ask questions to get a full explanation of anything you don't understand or don't agree with no matter how small that may be. Here are some of the things to look out for.

I found this on YouTube and find it to be a very good explanation between a Good Faith Estimate and an actual Pre Approved Home Loan. I do not know the producer of the video but I watched about 10 of them and find this one to be the best one.
 

Interest rate and points
A Good Faith Estimate shows your interest rate and any discount points you can pay at closing. Make sure you understand that paying discount points will buy you a lower interest rate and lower payments, but it will take many months before the savings make up for the fee. From my experience I have found that paying the least amount of discount points gives you the best loan in the long run.

Lender’s fees
The long list includes the appraisal fee, credit report fee, application fee, mortgage broker’s fee, and interest rate lock-in fee, if any. Watch for big differences between lenders -- no fees should vary widely. Also, watch for extra fees applied only by certain lenders, or missing fees that may not have been included but are sure to appear later. Ask a lender about any fee that seems out of line.

Title and transfer charges
The closing or escrow fee, title search and title insurance fees, and government taxes are pretty much standard. However, you might get a better rate (called a reissue rate) on the title insurance if it has been less than five years since the previous owner took out a policy on the property. And you don’t have to accept the lender’s title insurance company or attorney; you may try to find one who offers a lower price. Some states set the price of title insurance.

Prepaid interest
One item paid in advance is the interest on the loan for the period before the first payment date. Putting your closing date close to the end of the month can minimize this charge.

Insurance
A Good Faith Estimate may specify a figure for home or hazard insurance but it may be less expensive to arrange your own. Also, if you are being charged for mortgage insurance or flood insurance make sure you know why.  Many companies will let you cancel your mortgage insurance once the loan amount to outstanding balance goes below 80%. You will usually have to initiate the action.

Fees may rise
It’s important to remember that a Good Faith Estimate is only an estimate. The figures quoted could rise by 10 percent to 15 percent, or even more, by closing day. This may happen because a lender has simply applied the standard rates of the service companies it deals with, and then had to adjust them later. But some lenders could also be understating their fees. Unfortunately, the government doesn’t impose any penalties on lenders who issue an inaccurate GFE.

Fee lock-in & Interest Rate lock-in
You can protect yourself from nasty surprises by asking your lender to quote you the exact final costs, or to “lock in” its fees. Or you can look for one of the “bundled” fee packages now offered by some lenders, these might offer a cheaper overall price. Some lenders will let you lock in your interest rate that they have quoted you for up to 30 days. This varies from lender to lender.

Truth in Lending Statement
Along with the Good Faith Estimate, a lender will also give you a Truth in Lending (TIL) disclosure form. This gives you the Annual Percentage Rate (APR) on your mortgage, which takes into account discount points, mortgage insurance, and other fees on top of the basic interest rate. Your APR is usually higher then your actual loan interest rate.

The Truth in Lending form also lists the total finance fees, the amount financed, the total amount you’ll pay over the life of the loan, the total number and amount of your payments, and when they’re due each month. And it contains other important details, such as whether the mortgage is assumable if you sell the home, and whether there is a penalty for prepaying the mortgage; if the form says you “may” have to pay a penalty, it means you probably will.

Most important, understand that the figures in the Truth in Lending form can also change. If your interest rate or any of the fees go up by closing day, so will your APR and the overall cost of your loan. If you feel that you are getting the best rates and feel that the rates may go up then it may be best for you to lock in the rates if you can. The longer lock-in the better. My experience has been to lock in the rate if it is a good one and if rates go down more then 1/8% try to renegotiate the loan rate. If the lender won't go down I would just go to another lender.

 


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Note: I am not a real estate agent or broker. I am not a bank or mortgage company employee. All information is from my own personal experiences over my 25 years of buying and selling my own personal properties. Its been a wild ride!+