The Good Faith Estimate
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?
Shopping For Home Loan
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.
Related> How do we use a Good Faith Estimate?