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Good Faith Estimates (GFE) are often misunderstood by consumers. These forms were recently redesigned by HUD to make them easier to understand for the consumer.
In this article we're going to review the new Good Faith Estimate and help you understand how to read it.
You may download a blank good-faith estimate here to review Good Faith Estimate.
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At the top of this page you will see some basic information such as your name, property address, name of originator, and the date of the GFE.
Important Dates Section
Line 1 will have a box with a date in it. This date will tell you how long the current interest rate on this disclosure is good for. If your interest rate is not locked the date on this line will most likely be expired before you receive the disclosure. If your interest rate is locked, the date on this line is the expiration date for your rate lock. This means that you must close and fund this loan on or before that date or the interest rate listed on that disclosure is no longer guaranteed.
Line 2 tells you how long the closing cost portion of the estimate is good for. This line is not super important.
Line 3 tells you your rate lock period, again not important as long as you pay attention to line number 1 explained above.
Line 4 tells you how far in advance of your closing you must lock your interest rate. This is not very important either.
Summary of Your Loan
This section shows multiple details of your loan such as:
Loan Amount
Loan Term
Interest-Rate
Monthly Payment
If your interest rate is fixed or adjustable
If your loan has a balloon or prepayment penalty
Escrow Account Information
This section shows if your loan will or will not have escrow account. If your loan has an escrow account the monthly escrow payment amount will be shown here.
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Your Adjusted Origination Charges
The most important line in this section is Box A "Your Adjusted Origination Charges". The number listed in this box is the total origination fees that you will be paying out of pocket. Box A is the most important line on the entire estimate. You could essentially compare any two good-faith estimates by simply comparing the interest rates and the Box A fees. The fees in this box are really the only thing that you're lender/loan officer has any control over. To learn more about Box A fees and how to shop them and lower them download our special guide The Mortgage Shopping Blueprint.
Your Charges for All Other Settlement Services
Line number 3 - required services that we select. This will reflect your appraisal costs, and any other costs that you are required to pay but have no control over. These fees should be similar from lender to lender, but you can always compare just to be safe.
Line number 4 - title services and lender title insurance. This line reflects the total estimated fees from the title company to perform the title search, closing, and title insurance. Typically you can choose your own title company if you like. Learn how to shop title fees and lower your closing costs. Download our special guide, The Mortgage Shopping Blueprint.
Line number 5 - owner's title insurance. This line reflects the cost for owners title insurance. This only applies to purchase loans, refinance loans will always be zero on this line. Owners title insurance is optional and is not required to be purchased. Contact your real estate agent or title agent to discuss the benefits of owners title insurance.
Line number 6 - required services that you can shop for. This line reflects the estimated cost for required services that you are also allowed to shop for. If there is anything listed in this line you may shop for the least expensive service providers. An example would be a termite inspection.
Line number 7 - government recording charges. This line reflects the total estimated costs for government recording charges to record your mortgage and or deed at the courthouse. This should be similar from lender to lender.
Line number 8 - transfer taxes. This line reflects the total estimated transfer tax amount that will be due for purchase mortgages in states that have transfer taxes. The fees listed here should be the same for all lenders. Also, the seller typically pays transfer taxes in most states so ask your real estate agent and review your contract.
Line number 9 - initial deposit for your escrow account. This line reflects the whole estimated amount of money that will need to be put into your escrow account at closing. This number should be the same for all lenders. However, some lenders will underestimate this figure to make their estimates look better. Learn how to calculate your own initial escrow deposit by using our escrow calculator here Escrow Deposit Calculator.
Line number 10 - daily interest charges. This line reflects the estimated amount of daily interest charges based on the closing date shown. If your estimated closing date isdifferent, the amounts on this line will vary. The figures listed here should be very similar with all lenders.
Line number 11 - homeowners insurance. This line reflects the estimated amount of homeowners insurance that will need to be paid at closing. For example on a purchase the first years homeowners insurance must always be paid at closing.
Box B - Your Charges for All Other Settlement Services
This box totals all of the lines listed above. Be careful about relying too heavily on the number listed here. The reason is a lot of the figures are variables and will change based on closing date.
The most important thing that you should take away from this is that what matters most is the interest rate and the Box A fees. This is because lines 3-11 can either be controlled by you, or they are determined by basic math and cannot be manipulated by a lender.
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Page 3 has a table at the top with three columns. These columns explain which categories of closing costs could change at closing. These columns also explain the allowed tolerances of the changes. For example some charges cannot change at all and some charges can increase up to 10%.
If you would like to learn more about reading your good-faith estimate, and how to squeeze the most savings out of every area possible make sure to visit and download our special guide The Mortgage Shopping Blueprint.
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