Understanding The Good Faith Estimate For Mortgages

Man wearing a suit holding a mortgage document and pen

A Good Faith Estimate, or GFE, is one of those many things consumers need to understand before they take out a mortgage or reverse mortgage, or before they consider refinancing. The GFE basically summarizes the terms and the real cost of the loan, which should serve as your main reference when comparing offers.

Before you proceed with the mortgage, it is essential that you understand every detail provided in the document, so that you can make an informed decision about the right loan that suits your current and future financial situation.

What is a GFE For?

Good Faith Estimates, which you should, by law, receive three business days after lodging a mortgage application (unless denied), are three-page documents explaining the terms of the mortgage. Because mortgage and refinance programs in Salt Lake City and elsewhere vary from one applicant to another, with so many different factors influencing the total cost of the loan, and because mortgage rates change daily, GFE terms are not set in stone. Simply put, the document and terms it provides have an expiration date.

While GFE offers many benefits to consumers, a major drawback is that the law dictates that consumers honor the terms provided in the document even if it has been made in error. Consumers can trust that there are strict regulations in place to ensure the integrity of these documents, but being a touch apprehensive about these can go a long way.

What Do GFE’s Contain?

GFE’s contain three sections, to which a page is dedicated for each part. The first page will contain the date when the document was prepared and the duration for which it is valid, the loan summary, escrow account information, and summary of your settlement charges. In this section, you will get a good idea of the size of your loan, how long you’re going to pay it off, and how much you’re going to pay, from the initial interest rate all the way to the monthly principal + interest obligation. It should also provide the financial intricacies of the program you applied for.

The second page contains the adjusted origination charges, which includes the sum of all lender-charged fees and accompanying discount points. Basically, this section explicitly tells you how much your lender will charge you for giving you the loan, including processing, underwriting, origination, broker administration, and lock fees. This section will also include the charge for all settlement services. The law requires lenders to shop and assign these settlement charges to ensure a fair comparison. Know that these charges are out of your lender’s control, as these cover real estate tax, homeowners insurance premiums, and other mortgage costs due at closing.

Finally, the last page contains the charges which cannot and can change at settlement, and which can increase up to 10% at settlement. At the end of the document, you will see a Trade-off Table, which takes into account discount points that might offset other settlement fees and give you access to lower rates.

The most important thing to know about Good Faith Estimate is that lenders base the estimates on information available at the time of your application, which means that you can only trust so much. This is why shopping around and making use of comparison tools are the keys to finding the best mortgage for your situation.