Good Faith Estimate
The Good Faith Estimate (GFE) is a federally-required disclosure form that provides the mortgage borrower with an estimate of the closing costs, down payment balances, prepaid expenses and all other charges that the borrower is likely to pay at settlement. The lender is required to provide the borrower with a GFE within three days of accepting the loan application.
There are potentially dozens and dozens of closing costs, which typically amount to 3 to 6 percent of the mortgage loan. Because closing fees are substantial, it’s important that homebuyers have an idea what to expect so that the expense can be budgeted into the home purchase transaction. GFEs also can be a useful tool for comparing mortgage loan programs and lender fees.
Keep in mind that the GFE is only an itemized estimate of all the closing fees the borrower can expect to pay at settlement. Once the home purchase is about to be completed, the homebuyer will receive a form, commonly called a HUD-1, that sets in stone the total closing costs. It’s common for the final cost to be higher than the initial estimate; however, as a rule, the total shouldn’t differ by more than 15 percent. It’s a good idea to bring a copy of the GFE to settlement and compare it with the HUD-1. If you notice any significant discrepancies, be sure to ask your Realtor and mortgage professional for an explanation.
There are many factors that can increase final closing costs. For example, while it’s the lender’s job to provide the GFE, he is responsible only for the lender/origination fees. It’s also the lender’s job to let you know if there are any changes regarding the loan program, interest rate, origination fees or any other mortgage-related closing expense that could change the costs outlined in the GFE. However, the lender can only provide an estimate for the closing costs that aren’t associated with the mortgage, for example attorney fees, title insurance fees, prepaid property taxes, homeowners insurance and when applicable, homeowner association fees.