The Good Faith Estimate (GFE) has always been one of the key disclosures in the mortgage application process. It shows borrowers what costs the loan involves and the amount of their monthly payments. A few years ago, government regulators completely overhauled the GFE format and made it as confusing as it is informative. In fact, the GFE in its present form shows neither total monthly payment or what the borrower must pay at closing. That said, there is still plenty of valuable information on the GFE.
The Good Faith Estimate has been phased out. Find out about the Loan Estimate that replaced the GFE here.
Reading Listed Fees on the Good Faith Estimate
The Good Faith Estimate breaks out the fees of the loan by category. On the second page of the GFE, box “A” will show the lender’s total origination charge. Box “B” will show all other settlement charges involving third parties. These would include appraisal, title insurance, escrow or attorney fees, etc. This system prevents lenders from hiding “junk fees” by listing them out as separate line items. Box “A” will also include any money paid to the lender.
If comparing loans between different lenders, look at box “A” for the total origination charge. Then, quickly compare what different lenders charge for their services. Also, the third-party cost estimates in box “B” may vary between lenders. However, these fees often come out the same if the lenders use the same venders.
The lender is required to give you a GFE within three days of your received loan application. Barring a big change in circumstance during the loan process, the lender must legally honor the fees listed on your GFE. Further, the origination charge cannot change at closing. The estimated third party fees allow a change of up to 10 percent above the initial quote. This happens due to the chance the lender might not know what a third party will charge for their services.
Rate Lock and Loan Details
The first page of the GFE shows the interest rate. If the rate is locked, it will also show the expiration date. If your loan officer indicated a locked rate, look for this expiration date on the GFE. This serves as your proof that the lender really did lock your rate. Page one also includes check boxes to indicate a fixed or variable rate, and whether the rate or payment can ever rise.
Look below the rate and lock details for the section called the summary of the loan. The payment listed in this section is only the principal and interest, as well as mortgage insurance if applicable. If you plan to include taxes and insurance in your mortgage payment, then the payment amount on the GFE does not reflect your total monthly obligation.
At the bottom of the first page you will find the grand total of fees from page two’s boxes “A” and “B.”
Payment and Transaction Details
The GFE is a useful tool for understanding loan fees, interest rate and the lock. It also serves to protect the borrower from future cost increases. However, it does not provide all the information you need to understand your loan costs. Specifically it does not give details of the monthly payment and the cash needed for closing.
Along with the GFE, the lender will provide a whole set of loan disclosures within three days of your application. This includes a typed copy of the loan application form, referred to in the industry as form 1003. The top of the second page of this form lists the total monthly payment of the new loan. The list breaks it up by principal and interest, taxes, insurance and, if applicable, mortgage insurance. Page three of this form includes a section called the “Details of Transaction.” This states how much money you need to pay at closing.
Again, the GFE does not contain this important information. By using the GFE and loan application form (1003) together, you can get a fully accurate picture of your loan costs and future monthly obligation.
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