The Good Faith Estimate
When
taking
out a mortgage there are many important documents
that must be reviewed, read and signed throughout the
process.
With all of
the
different documents, it can get very confusing as
to which one is which.
One of the most important documents in the
mortgage
application process is the Good-Faith Estimate document.
The full name of the document is the good-faith estimate
of fees due at closing, but most lenders just shorten
it to the GFE.
The article “Good-faith estimate,” posted
on Bankrate.com on May 1, 2006 explains what this intricate
document is all about.
“Whether you are
buying
a home or are refinancing your current mortgage, you
eventually have to
apply
for a loan and compare offers. You will need to gather
a lot of paperwork, satisfy a list of credit requirements,
negotiate the best possible loan terms and make sense
of the good-faith estimate. You will be asked to supply
a lot of paperwork when you apply. Then you'll get some
paperwork in return. Of the documents you receive, the
most important is the good-faith estimate of closing costs.
The lender might shorten that to "good-faith estimate"
or GFE. Here we will call it the good-faith estimate.”
The good-faith estimate may a little bit difficult to
decipher at first, as well as very overwhelming, since
there are a lot of numbers and charges listed on this
all-important document.
But this document is a vital part of the loan process,
so it is extremely important to at least try and get an
understanding of it.
The GFE is important for a number of reasons. It is best
to get a GFE from a couple of different companies so you
can compare.
“The closing fees, also called settlement costs,
cover almost every expense associated with your home loan.
Because closing costs typically amount to between 3 percent
and 5 percent of the sale price, it is best to wait until
you receive the good-faith estimate before committing
to a loan. Smart shoppers obtain good-faith estimates
from two or more lenders compare their costs and ask questions about any large discrepancies.”
The fees listed on your GFE can essentially be compartmentalized
into two separate categories; the first one being origination
fees and the second being settlement, closing and escrow
fees.
Examples of origination fees that would appear on the
GFE are: processing, underwriting, rate lock, mortgage
broker fee, application, assumption, credit report and
property appraisal, just to name a few.
As for settlement, closing and escrow fees, those would
be listed as: transfer tax, pest inspection, notary, attorney,
title examination and condominium application, etc.
The important thing to remember about the GFE is that
it is just an estimate, and the final numbers could be
quite different from what is listed on this document.
“The lender directly controls some of the fees,
and those are the ones to pay the most attention to when
you are comparing offers. Some fees are performed by third
parties, and usually don't vary much from lender to lender.
Other expenses are under your control, and there are taxes
and government fees that should be the same, regardless
of the lender.”