Understanding The Good Faith Estimate: GFE
This BLOG On What Is The GFE And Understanding The Good Faith Estimate Was Written By Gustan Cho NMLS 873293
After the mortgage and real estate meltdown of 2008, the whole mortgage industry went through a major overhaul where all mortgage lenders which includes banks, credit unions, mortgage bankers, and mortgage bankers had to abide and conform by.
- Foreclosure rates have hit historical highs and tens of thousands of mortgage lenders went out of business.
- No doc, stated income mortgage loans and mortgage lenders specializing in these mortgage products disappeared overnight.
- Millions of homeowners had mortgage loans with teaser rates and negative amortization initially and after a few years, their new adjustment on their mortgage loan payments have multiplied significantly where they could not afford their home and went into foreclosure.
- Government created disclosures after disclosures as part of the new mortgage rules.
- Part of the mandatory requirements that mortgage lenders needed to disclose is the Good Faith Estimate, also referred as the GFE.
- Understanding The Good Faith Estimate was often complex and confusing and the CFPB was working on getting it replaced with the Loan Estimate.
The Good Faith Estimate
The GFE is supposed to be a very important part of the mortgage application process but understanding the good faith estimate was often complex to many loan officers and consumers.
- The Good Faith Estimate was created to serve as a way for a public consumer, the mortgage applicant, to compare, shop, and comprehend the costs and fees associated with obtaining a residential mortgage loan.
- The Good Faith Estimate is required to be given to all mortgage applicants by mortgage lenders under the Real Estate Settlement Procedures Act, also known as RESPA.
- The Good Faith Estimate needs to be provided to all mortgage loan applicants within three days of a mortgage loan applicant applying for a residential mortgage loan and the Good Faith Estimate needs to include costs and fees that is itemized of getting a mortgage loan.
Costs And Fees On The Good Faith Estimate
There will be itemized fees and costs on the Good Faith Estimate.
- The costs and fees listed on the Good Faith Estimate are not final costs and fees.
- There are estimated fees and costs that a home mortgage loan applicant may or may not incur.
- The fees and costs on the Good Faith Estimate can change depending on the mortgage rates or if there is an adjustment on the home purchase price such as if the appraisal on the subject property does not appraise out and there is a price adjustment on the original real estate purchase price.
- Most mortgage lenders will inflate the Good Faith Estimate because the actual costs incurred by the mortgage borrower cannot be higher than 10% over the price quoted on the Good Faith Estimate or else, the mortgage lender needs to pay for the difference.
- For example, if your mortgage loan originator quoted you a $1,000 fee on a well and septic inspection and you had a well and septic inspection and cost you $2,000, the maximum you need to pay is $1,100 or 10% above the Good Faith Estimate.
- Your mortgage lender needs to pay the $900 even though the mortgage has no relationship and/or profit or gain with the well and septic inspection.
- However, if the Good Faith Estimated stated $3,000 for the well and septic inspection and you paid $2,000, your mortgage lender is not liable and you will pay the $2,000.
- Most mortgage lenders will inflate the Good Faith Estimate.
- Just because you get a lower quote on a Good Faith Estimate does not mean you are getting the best deal on a mortgage loan.
- There are two categories of fees that fall within the Good Faith Estimate.
- The lenders fees and the third party fees.
Lender Fees On The Good Faith Estimate
The lender fees and costs on the Good Faith Estimated include the loan origination fees, the mortgage processing fees, the credit report fees, the underwriting fees, the inspection fees, and points and discount fees. Lender fees on the Good Faith Estimate are fees and costs associated with the mortgage lender in originating the mortgage loan.
Third Party Fees On The Good Faith Estimate
Third party fees on the Good Faith Estimate are fees and costs that is incurred with the mortgage loan borrower in getting the mortgage loan to close and is independent from the mortgage lender. Third party fees on the Good Faith Estimate include appraisal fees, title insurance fees, attorneys fees, home inspection fees, tax certification fees, survey fees, and government recording fees.
2017 Update On This Article On Understanding The Good Faith Estimate
The Good Faith Estimate was replaced by the Loan Estimate on October 3, 2015. Now, after borrowers gets a CTC, CLEAR TO CLOSE, there is a three day waiting period in order for a home buyer to be able to close on their home loan. The replacement of the GFE was the doing of the Consumer Financial Protection Bureau, CFPB.