The Good Faith Estimate

Annual Percentage Rate

Gustan Cho Associates

The purpose and goal of the Good Faith Estimate, also known as the GFE, is to encourage mortgage loan borrowers to compare and shop for costs and fees from other mortgage lenders before on deciding with which mortgage lender to go with.  The purpose for the Good Faith Estimate is to help mortgage loan applicants comprehend and fully understand the services they can shop for not only for the best terms and the  lowest available mortgage rates but also for the best third party charges.

Why Was The Good Faith Estimate Launched

The residential mortgage industry is extremely regulated unlike commercial mortgage industry.  The government want to make sure that consumers who shop for residential mortgage loans are protected.  The whole mortgage industry went through a major overhaul after the 2008 real estate and mortgage meltdown which included the elimination of no doc mortgage loans.  Thousands of mortgage companies went out of business and the whole sub prime mortgage industry got wiped out.  Disclosures and over disclosures with mortgage applications became the norm.  The Good Faith Estimate was implemented with the purpose of helping mortgage loan applicants from excessive charges and fees.

What Is The Definition Of  Good Faith Estimate?

The latest version of the Good Faith Estimate was implemented in January of 2010.  There are several components and factors in the newest version of the Good Faith Estimate, GFE.
Mortgage lenders are required to issue the GFE, Good Faith Estimate, to the mortgage loan applicant in 3 days after receiving the signed completed mortgage loan applican from the mortgage loan applicant.  If the mortgage loan originator does not provide the Good Faith Estimate, GFE, within 3 days of receiving the signed completed mortgage loan application, the mortgage lender is in violation of Section 5 of RESPA.  The United States Department of Housing and Urban Development, HUD, sets what constitutes a complete mortgage loan application.  According to HUD, a completed mortgage loan application needs to have the mortgage loan borrower’s name, the mortgage loan borrower’s monthly income, the mortgage loan borrower’s social security number in order to pull the borrower’s credit report, the subject property address, and market value of the subject property, the amount of loan, and other information that is necessary for the mortgage loan application.
The Good Faith Estimate is in a standardized format and all mortgage lenders must provide mortgage loan applicants with the same documents.  Mortgage loan charges and fees, third party costs and fees, and other fees and costs associated with the origination of the mortgage loan needs to be properly and uniformly displayed.

Shopping For Home Loan

The Good Faith Estimate is suppose to encourage mortgage loan applicants to shop for the best mortgage rates and costs associated with the origination of the mortgage loan.  Mortgage lenders are required to provide the mortgage loan applicant with the Good Faith Estimate within three days of receiving a mortgage loan application.  Another requirement that has been implemented by the United States Department of Housing and Urban Development, HUD, is that mortgage lenders are limited on what they can charge a mortgage loan applicant.  HUD restricts on what the mortgage lenders can charge and how much they can charge.  Most mortgage lenders will not charge anything but a mortgage lender can charge a nominal credit report fee of up to $50.00.  The restriction of upfront costs that a mortgage lender can charge enables mortgage loan applicants to shop for mortgage companies for the best rates and costs when shopping for a loan.
Shopping for mortgage loans will require mortgage lenders to do credit pulls.  Every credit check is a hard pull credit check and will drop the mortgage loan borrower’s credit score.  If you shop for mortgages for a course of two to three months, most mortgage lenders and/or creditor who pull credit will think that the mortgage loan applicant is getting denied for a mortgage loan and can adversely affect their chances for a mortgage or other credit approval.  It is best advised if you want to shop for a loan, do so in 30 days and not to exceed 45 days due to the negative impact it will do on your credit scores and credit report.

How Accurate Are The Fees And Costs Listed On The Good Faith Estimate

The Good Faith Estimate is just what it states.  It is a list of costs that a mortgage loan applicant can encounter and if they do not use a particular vendor or is not required, than the fees and/or costs does not apply to them.  Many mortgage loan originators do not believe in the Good Faith Estimate and think it is just worthless.  A mortgage loan originator needs to prepare a Good Faith Estimate but the Good Faith Estimate has many costs and fees that a mortgage loan originator needs to list where the mortgage loan originator is clueless.  For example, third party fees and costs that a mortgage loan originator needs to list on the GFE, the mortgage loan originator may not know how much a septic and well inspection costs.  The loan officer still needs to list it on the GFE in the event if the home buyer does encounter a well on the property and wants it inspected.  Even though the mortgage loan originator has absolutely nothing to do with the third party well and septic inspection, the mortgage loan originator is liable for the cost of the well and septic inspection if he or she did not list it on the Good Faith Estimate.  How does the mortgage loan originator know the cost of a well and septic inspection?  Most mortgage loan originators will probably list $1,000 on a well and septic inspection.  Even though a well and septic inspection may only cost $200.00, if the mortgage loan originator underdiscloses it,  and the well and septic inspection goes over what the mortgage loan originator listed as an estimate, than the mortgage loan originator is liable for anything that is over 10% of the the original estimate he or she listed.  However, if the mortgage loan originator overdiscloses it like stating it as $1,000, anything costs and fees under $1,000, the mortgage loan originator is not liable for.  That is why the Good Faith Estimate is not an accurate indicator of the costs and fees involved with the purchase of a home and origination of a mortgage loan.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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