What Is A Good Faith Estimate? (aka GFE)

By James Young on July 14, 2013
What Is A Good Faith Estimate? (aka GFE)

It’s finally over: All those hours spent searching for the perfect home, shopping around for mortgages and running different scenarios on a mortgage calculator are finally behind you. You’ve got your loan and found your house – all that’s left is the closing. Sign a few papers, grab the keys and the house is yours. Well, not quite. You’ve still got to pay all those closing costs – typically about 2% to 6% of the cost of the home (that’s anywhere from $4,000 to $12,000 on a $200,000 home). Now, no matter how you slice it, that’s a considerable sum. Fortunately, you’ll have some time to plan on what to expect, thanks to a handy little document called the Good Faith Estimate, or GFE.

What is a Good Faith Estimate (aka GFE)?

The GFE is a form your lender will give you, and it lists all the ESTIMATED costs you’ll be paying at your closing, as well as the terms. Notice how the word “estimated” is all in caps in the previous sentence? That’s because, just like the name says, the GFE is an estimate – a best guess – and that means your closing costs could be slightly higher or slightly lower than what’s listed in the GFE.

When will you receive the GFE?

Typically, a lender must provide a borrower with a GFE within three days of loan approval. That gives the buyer a decent amount of time to review the list and, sometimes, negotiate some of the costs and fees down – and also to make sure there’s money on hand to handle the costs.

What’s on the GFE?

Developed by the U.S. Department of Housing and Urban Development (you’ll probably recognize it by its ultra-cool, Hollywood-esque nickname: HUD), the GFE includes costs divided into six categories:

  • Loan fees (such as appraisal fees, credit report costs, flood certifications and the like)
  • Items required by lender to be paid in advance (like mortgage insurance and homeowner’s insurance)
  • Reserves (including initial escrow deposits and property taxes, among others)
  • Title charges (such as title insurance and policy fees and settlement costs)
  • Government charges (recording charges and transfer taxes, for instance)
  • Additional charges (CHA-CHING! This is kind of a catchall, and even the form says this is the place to put items that you – the borrower – can shop around for)

GFEs often have a few costs included that are not-so-lovingly referred to as “junk fees.” These include things like courier costs and copying fees, and usually these items can be negotiated out or at least down. Identifying those costs early on and asking to have them chucked out is a very good reason to review your GFE as soon as you get it.

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About James Young

My name is James Young- I love red wine, sailing, and playing guitar. I believe that everyday is truly a gift. I'm blessed to live five minutes from the sand in the beautiful city of Long Beach, CA. When I'm not assisting homeowners, you'll find me belting melodies with friends around a campfire, wandering the halls of an art exhibit, or watching ESPN re-runs until the sun comes up. So what am I doing here, you might ask? In a couple of sentences- I'm passionate about empowering first-time and experienced home buyers to make their dreams a reality. Whether it's saving thousands on your home loan, buying your first home, or acquiring your first investment property, I'm always here to help. Don't hesitate to ask questions, and please remember to "share the love"! :) #loveloans #loverealestate #lovelife!
  • http://www.daytonhomeloans.com/ Dayton Home Loans

    Don’t forget the items listed on the Good Faith Estimate that are actually not Closing Costs, better known as Prepaids. Things such as the amount of money put into the property tax or home owners insurance escrow account to fund it, first years insurance premium (paid at closing) and daily interest. These are all listed on the Good Faith Estimate, but really shouldn’t very from lender to lender. However, the GFE doesn’t seperate these out for you, like the old…1 page…itemized form did. Oh and let’s not forget about some things that have to be disclosed on the GFE that the buyer doesn’t pay…such as Transfer Tax (on a purchase) here in Ohio. Overall, the GFE is a terrible form that does very little to help a borrower understand the actual costs/prepaids of a loan. Heck, it doesn’t even give you the amount you will be required to bring to closing.