What is a GFE?
A GFE, also referred to as a good faith estimate, is a document that includes the breakdown of approximate payments due upon the closing of a mortgage loan. A GFE helps borrowers shop and compare costs of loans with lenders. You are not obligated to accept the loan just because you received a GFE. Smart mortgage shoppers apply for at least two loans and use the GFE’s to determine which lender to use.
Prior to October 3, 2015, the GFE was a required document that lenders had to give mortgage applicants within three days of the application to explain the terms and charges associated with the mortgage. On October 15, 2015, the GFE was replaced by the Loan Estimate and Closing Disclosure Form.
The GFE outlines all of the costs of your mortgage loan, including your loan amount, term, interest rate, whether there is a prepayment penalty, origination charge, and more. In the fees outlined in the GFE, some fees are paid by the buyer and some by the seller. The charges fall into these categories:
- Loan fees
- Fees to be paid in advance
- Reserves or escrow paid to third parties
- Title charges
- Government charges
- Additional charges
Please note: If you applied for a mortgage on or after October 3, 2015, you will receive two new disclosure forms (called the Loan Estimate and Closing Disclosure Form). These documents will replace the Good Faith Estimate (GFE) for most types of mortgage loans. If you applied for a loan before that date, or you’re applying for a reverse mortgage, you will receive a GFE.
Receiving a good faith estimate
Lenders are required by law to give you the Good Faith Estimate (GFE) within three business days of receiving the loan application. This will explain your loan terms and costs associated with the loan. The GFE must be mailed or hand-delivered by the end of the third day.
A mortgage broker will also send a GFE if you use a broker to apply for a loan. You will receive another GFE from the lender shortly after the lender accepts your application.
How accurate is a GFE?
The lender’s good faith estimate should be more accurate than a mortgage broker’s GFE, but some numbers are likely to change. For example, third-party fees on the GFE, such as the title company fees, could change because the title company you use for closing charges different fees.
The lender’s fees on the GFE may be more accurate because they know their own fees, but these fees can fluctuate. So be prepared for any fees to increase. Rarely do they decrease before the closing.
Since the GFE is only an estimate, your actual fees will be listed on your settlement documents given to you right before closing.
What type of fees are in a GFE?
The Good Faith Estimate (GFE) will outline all of the fees you should expect to pay for your mortgage. The fees in the GFE will include:
- Application Fee: This is the processing charge paid when submitting the loan. It may be rolled into other fees.
- Appraisal Fee: Pays for an independent appraisal of the home’s value, which is not the same as the home inspection.
- Attorney Fees: This fee covers the cost for the lender’s attorney to prepare and review all of the documents needed to close your loan. Sometimes the cost for the seller’s attorney is included in this fee.
- Credit Report Fee: This is a charge to have the lender pull your credit history from one or all of the three major national credit bureaus: Equifax, Experian and TransUnion.
- Discount and Origination Points: Points you may be charged are equal to some percent of the loan amount and would lower the interest rate or cover the costs for creating the loan.
- Escrow Account: Although not really a fee, it is the upfront, prepaid amounts the lender requires in order to pay homeowners insurance, private mortgage insurance and property taxes.
- Flood Certification: If required, you’d have this charge for running a check to verify that the property is not in a flood zone.
- Interim Interest: This is accrued interest from the closing date until the end of the month.
- Survey Fee: This charge covers a survey of the property to verify its official boundaries or property lines.
- Title Search and Title Insurance: The title search includes examination of deeds, court and property records to determine the legal owner of a home and if there are any liens or claims against the home.