GFE - Good faith
estimate. A written estimate of expected closing costs that a lender
must provide a prospective homebuyer within three days of the homeowner
submitting a mortgage loan application. Brokers and lenders are required
by law to make as accurate an estimate as they can.
The GFE is sometimes misused by loan originators. Some will deliberately
under estimate the borrower's cost in order to make the sale. On
the other hand some loan originators purposely over estimate the
closing costs in order to make the borrower feel good about saving
on closing costs.
A Good Faith Estimate (GFE) is just what it says it is. An estimate
of settlement (closing) costs and this estimate is made in good
faith. Estimates are not exact, as things can change between application
and settlement (closing).
Making an estimate in good faith means that a Lender tries very
hard to get the estimate of costs as close to the actual costs as
possible. This does not mean the closing costs shown will be exact,
but it should be close.
The TIL will show the APR (Annual Percentage Rate). The APR can
be used to determine the overall cost of the loan to you, expressed
as a yearly rate. The APR DOES NOT affect your monthly mortgage
payment. Your monhtly payment is still a function of the interest
rate, and the length of the loan. The APR can be useful when comparing
the costs of two identical loan programs (two 30 year fixed rate
loans), when the fees on the GFE differ slightly.
And please note that the GFE is only an estimate. It's an educated
guess based on normal fees and escrow amounts and not meant to be
exact to the penny. Although he better you broker, the closer your
GFE will be to matching your HUD.
The GFE contains line items with item numbers corresponding to
those on the HUD-1 Settlement Statement, which is given to the borrower
at settlement. The HUD-1 Settlement Statement is an itemized list
of the ACTUAL settlement cost, as opposed to the estimates on the
Good Faith Estimate.
Good Faith Estimates vary by mortgage broker. When comparing, always
ask for a TIL (Truth in Lending) which should break down the details
of the mortgage loan they are offering. The GFE will vary because
different lenders include different estimates and fees. When receiving
a GFE, always ask for the matching TIL for that loan quote.
