Do You Know What a Good Faith Estimate Is?
If you’re a home buyer and are shopping around for a mortgage, you’re bound to come upon the term “good faith estimate” or GFE.
Sure, your realtor will probably take a stab at explaining to you what it means, and the folks around your office will surely try to clue you in.
But the fact is for a first-time home buyer – and even an experienced one for that matter – a GFE can be confusing. That’s why we thought we’d ask the question…
Do you know what a good faith estimate is?
Mortgage lenders and the law
A good faith estimate is an itemized list of the various fees and settlement or closing costs due when a real estate transaction closes. Because of the various entities responsible for these fees, it really is just an estimate.
By law, mortgage lenders are required to provide a loan applicant with a good faith estimate within three days of applying for a loan. The lender will itemize the costs into a multipage document and hand it to you for review.
At this point, most people either go cross-eyed looking at it or smile and file it away with the other documents they don’t understand.
“Compare estimates side by side
and ask questions of the lender.”
Here’s what should happen:
How to be a smart borrower:
In order to know you’re getting a good deal on a mortgage, you should always apply with more than one lender or mortgage broker. When you receive the GFE from each of them, you can compare costs and ask intelligent questions.
Most of the categories and estimates will use the same terms for the individual fees, so comparing them should be relatively easy.
One thing to note is the lender has control over some of the fees charged, but others are controlled by outside entities. Knowing which is which will let you negotiate the best deal with a lender.
After comparing your GFEs side by side and learning where the negotiating points are, it’s time to talk directly to the broker or lender.
Tell them you want the loan, but ask where they can reduce some of the fees. They will usually be able to bring the cost down some, but be careful not to overdo it. You want them to be motivated to do a good job for you, not put your paperwork on the bottom of the pile.
Also, watch out for lenders who may be trying to low-ball the GFE. If third-party fees are lower for one lender than the others, it may be a sign something is wrong.
An unscrupulous lender might be just looking for your business with a low estimate and will later say the excess costs were outside of his control.
Now that you know what a good faith estimate is, you can enter into the mortgage application process a little better prepared.
Remember to compare estimates side by side and ask questions of the lender or mortgage broker. The way they answer your questions is a good indication of whether you should trust them with your business.
Photo source: lindsaysnyder.files.wordpress.com