A good faith estimate (or GFE) is a 3 page document which must be given to a mortgage borrower by a lender once a purchaser makes a formal application. This is the law.
The estimate, commonly called a GFE, is a full financial dashboard which discloses ALL of all fees associated with a mortgage loan. The GFE is a uniform statement (meaning all mortgage companies use the same form) giving it the same line by line structure to make comparison easy. All of the fees should appear in the same section of the form.
The fees disclosed include:
- bank loan fees
- required services such as appraisal
- title charges
- government fees
- pre-paid items (including interest, taxes, and home owner insurance)
The loan origination or bank fees, listed in Section(s) 1 and 2, are fees that once disclosed, cannot increase. Other charges associated with closing that are provided by a third party (listed in Section 3), are then detailed. These include appraisal, credit report, tax service, and a flood certification fee. These fees are not allowed to increase greater than 10% at settlement.
Sections, 4, 5 and 6 relate to costs associated with your loan closing and title insurance. The cost to settle the loan by a title company or attorney (as well as lender’s title insurance) is disclosed. These fees are subject to change if you chose your own agent, but generally are capped by the same 10% increase as above. Lender’s title insurance is required and protects the bank from an improper transfer of ownership. Owner’s title insurance is considered optional but recommended, and almost everyone pays for the protection. An owners’ title policy protects you from a potential challenge to your ownership.
Sections 7 and 8 reflect the cost of recording your deed in the city or county courthouse as well as the transfer taxes associated with your purchase. The transfer taxes cannot increase once disclosed and are based off of the amount borrowed and the greater of the assessed value or sales price. This is a tax that goes directly to the state and local municipality and is not a lender-pocketed fee.
Sections 9, 10, and 11 reveal the amount of cash required for reserves or escrow accounts in the case your real estate taxes and home owners insurance are part of your mortgage payment.
The disclosure also will confirm that the terms of your loan are either fixed or variable and cover other parameters such as any penalties or lack thereof to ensure your comfort and knowledge of the program you have chosen. The form is strictly costs and does not reflect any earnest money deposits, seller paid closing costs, or down payment.