About the Good Faith Estimate GFE
The good faith estimate (GFE) is one of several government-required disclosures that you will receive at the time of or within three days after application. It is a legal requirement that all lenders must follow.
The GFE provides the borrower with an honest approximation of the closing costs, down payment balances, prepaid expenses and all other charges that the borrower must address at the closing.
The borrower should hold the lender to this estimate, with some obvious leeway. The lender must inform the borrower immediately of any changes in the loan program, rate, pricing and closing costs. Obviously, the lender can only guess at the time of application what expenses such as attorney fees, title charges, investor fees, inspection costs and other such variable expenses will be. These expenses are set by other parties or chosen by the seller or buyer, not the lender. However, the lender should be accurate with its own fees.
As a rule of thumb, the borrower should be concerned if the final closing costs are more than 15% higher than the estimate. The exception is if the borrower is fully informed by the lender beforehand that these items will be higher, and the borrower accepts. Note also that other expenses not anticipated by the lender may appear during the processing period. If they are legitimate, they will often be unavoidable.
SAMPLE Good Faith Estimate: Click here to view a sample good faith estimate for "Jane & John Doe."
The good faith estimate is normally divided into four sections, not including the necessary disclaimers, application information and borrower acknowledgment.
This review of the good faith estimate is divided into four parts, not including this introduction. The four sections itemize the projected amounts for the following elements:
- Closing costs. These are one-time fees to be paid by the borrower at the closing.
- Prepaid expenses. These are elements of the borrower's projected housing payments (interest, taxes, insurance, etc.) that must be prepaid to establish the escrow and loan schedule.
- Balance of cash for closing. This section provides the borrower with a balance sheet, to calculate the amount of funds that the borrower will need to pay or will receive at the closing.
- Projected monthly payment. This section itemizes and adds together the borrower's projected monthly housing payment, based on the current loan amount, interest rate, term and other housing debts.
Click on any of the four section headings above to jump to a more detailed review of that section. For additional information about these expenses, please consult the "Housing Payments (PITI)" article, as well as the "Homebuyer Guide" and "Glossary" sections.
The closing costs section often scares many unsuspecting applicants with the amounts normally disclosed. As discussed in the "No Closing Cost Options" article, closing costs are unavoidable but can be greatly minimized or sometimes eliminated.
Numbering System
In the closing costs and prepaid expenses section, the itemized charges have uniform line numbers. These line numbers have been established by the U.S. Department of Housing & Urban Development (HUD). These numbers are sometimes called RESPA (Real Estate Settlement Procedures Act) category numbers, named after the law passed to provide consumers with more protection through more thorough disclosure requirements—which developed this system.
At the closing, all parties will receive a copy of the finalized HUD-1 Settlement Statement. This statement is usually the last document reviewed and signed at the closing. The settlement statement is the final balance sheet or financial statement for the loan transaction, and it will review all funds collected and/or disbursed by the buyer, seller, real estate agents, title company and lender during the course of the transaction.
You will notice that the settlement statement entries will have the same line numbers as the good faith estimate, although the settlement statement will have more entries and details. In a sense, the good faith estimate is the preliminary settlement statement.
Post a comment