How To Read A Good Faith Estimate

As an experience mortgage, one of the things that really don’t like to hear is the “can you send me a good faith estimate” idea. Don’t get me wrong, I think that good-faith estimates are a way that’s consumers can compare lenders, but the sad part is, most consumers don’t really know how to read a good-faith estimate and therefore don’t really know how to compare lenders accurately.

So the way I look at it, I provide a good-faith estimate I am potentially shooting myself in the foot because I realize that my good-faith estimate is going to be accurate, but the other lenders that they’re comparing against most likely will not be accurate which means under estimated.

As a consumer or a potential borrower, the very first thing that you need to realize is that a good-faith estimate is just that, an estimate. Everything in a good-faith estimate is subject to change and it is not a written in stone commitment to lend you money. So in other words, just because Ted at XYZ Bank gives you a good-faith estimate with a interest rate of 2.8%, it does not mean that you are locked into that 2.8% interest rate.

The nuts and bolts of a GFE.

When you look at a good-faith estimates are broken into three major components. Section 800 deals with lender fees. Any fees charged to you by the lender will be listed here and sometimes listed under different names. The important part is not what these fees are actually called, that what you are being charged as a total from the lender. This is pretty much all that the lender really has control of in the transaction as far as your fees go. The next sections will be “third-party” fees which the lender is required to quote you on but has no control over.

Section 900 and 1000.  This is the section that’s shows you what you must pay in advance to obtain the loan. This is called your prepaid items section. Most lenders require that you prepay some interest and some taxes so that they can start your as for account for these items. You may also be prepaying some of your home insurance these.

Section 1100, title fees: this is the section that shows you what the title and escrow fees are going to be. These fees are regulated state by state and should be very very close to the same with every good-faith estimate that you see. If you don’t see these fees you better start asking questions because they have to be paid at closing by somebody.

Section 1200, government and transfer charges: in this section you’ll see any fees associated with the government. This depends on which state you live in.

So to all comes down to it, the only section that you need to really pay attention to when you’re comparing lender fees to lender fees to section 800 of your good-faith estimate. The rest of the sections will be exactly the same regardless of which lender you go through regardless of what it says on the good-faith estimate.

Keep in mind, when you’re getting good-faith estimates many lenders will show you the minimum so that it will appear that their good-faith estimates each out all others, and that’s just not right. That’s why we always recommend that you also choose someone based on their knowledge, their trust, and their experience.