Within just three days of applying for a loan, you will get a document called a Good Faith Estimate (GFE). These pages outline the terms of the mortgage and the settlement charges.
Put into place by the Real Estate Settlement Procedures Act (RESPA), lenders must issue a Good Faith Estimate by law. If you applied for a mortgage before Oct. 3, 2015, you received a Good Faith Estimate. If you applied on or after that date, you will get a new form entitled the Loan Estimate. Different name, same type of disclosure. They prevent lenders from taking advantage of prospective homeowners with excessive fees, and they allow individuals to make more informed choices when shopping for a mortgage.
A mortgage is made up of the principal loan, interest rate, mortgage insurance (if this applies), homeowners insurance, and property taxes. A Good Faith Estimate will include the first three, but not the homeowner’s insurance or property taxes. Be sure to factor these into your finances when making a final decision.
Common fees you will see on a GFE:
- Loan processing fees
- Interest rate
- Government fees
- Third party fees (such as attorney fees and title companies)
- Closing costs
There are also other details like whether or not the rate is fixed or “floating” (adjustable). This is so you don’t get caught off guard with a rising interest later on.
Of course, these estimates are simply that – estimates. Be prepared for the final numbers to change, but not that much. A lender should already know what fees they charge, so an application fee, for instance, will always be accurate.
A GFE is not a guarantee for loan approval. It’s simply a preliminary statement by banks, mortgage companies, and financial institutions so you can know before you owe. When added up, surprise fees are very costly and will have a great impact on your personal finances.
Smart shoppers use them to get the best deal out of homeownership without penalty. It’s a helpful tool in comparing loans across lenders. So take advantage of these summaries and get multiple GFEs before deciding on a final providers.