Making Sense of Your Lender's Good Faith Estimate
Do YOU know what a good faith estimate is and what sorts of information it holds? Learn how lenders generate their estimates, what factors you’ll find on every GFE, and find out what happens when GFEs have conflicting figures with the final costs at closing.
Many technical terms fill out the world of mortgage lending and developing a workable idea of at least a couple of these ideas will help you out tremendously when you sit down to sign your first mortgage. One of the most important terms you need to learn is “good faith estimate,” as ignorance of this term can cause a lot of confusion later on in the process of acquiring your home loan.
What is a Good Faith Estimate?
Simply put, a GFE is an estimate of what your loan is going to cost you. Your lender works out this estimate and they are required by federal law to give it to you within three business days of receiving your loan application.
The GFE you receive will include a number of different values factored into it. The estimate will include an itemized list that provides the most accurate data the lender can come up with related to what expenses (including fees) you’re going to need to pay to receive your loan. The main fees included in a GFE are the sorts of expenses we generally refer to as “closing costs” and they cover everything from the price of inspecting our home to the various taxes, forms of insurance, and other costs incurred with obtaining a loan.
Why is a GFE So Important?
As you can imagine a GFE plays a pretty big role in the whole loan-acquisition process, big enough that the Federal Government feels the need to regulate this step to the point where GFEs are all filled out on a single standardized form.
So why are GFEs so important and why do the Feds think these rough guesses need to be so standardized?
Simple. When you search the market for a home loan you’re likely going to solicit multiple lenders. Your GFE gives you a standardized document for comparing the different offers you’re going to receive from each lender. GFEs let you lay the offers, side by side, to see which one best meets your needs in an indisputable way.
Well, in a mostly indisputable way.
The Problem With GFEs
GFEs represent a truly helpful element of the loan acquisition process, but that doesn’t mean GFEs are perfect or even perfectly accurate. These documents are estimates after all, the best guesses your lenders can come up with based on the data available when you apply for a loan. If that data changes, if your circumstances change or if the values going into the GFE take a hard right due to uncontrollable external circumstances, then these estimates might not end up representing the final cost of closing out your home as accurately as you would have hoped.
Does this mean you should take the GFEs you receive seriously? Does this mean the GFEs you receive shouldn’t form the basis of your decision-making process when selecting which lender to go with? Not at all. It just means you need to think of each good faith estimate for what it is- an estimate.
Before you get this far in the process, a home mortgage calculator can help you identify a budget for purchasing a new house, or for going through a refinance. Determining both a monthly payment and the amount the home will cost over the entire life of the loan is important for good stewardship and wise choices.