Good Faith Estimate
Good Faith Estimate or the GFE is a document supplied by the bank or lending institution to the customer, within 3 business days of receipt of the loan application and gives an estimate of your settlement charges and loan terms if you are approved for this loan. Only you can decide what the best loan is for you, depending upon the charges and rate of interest, hence always make sure that you compare the GFE of one bank with that of another. GFE is the first document that kick starts the mortgage process. The Real Estate Settlement Procedures Act (RESPA) clearly stipulates that this document has to be supplied within the stipulated time frame of 3 business days of receipt of application; hence failure to do so can land the bank in trouble for violation of rules.
There are a few misconceptions related to the good faith estimate. While some people are of the opinion that the GFE is a final estimate, this is not right. The GFE acts as an estimate and stays as one, hence the bank is always at liberty to change the terms as well as rates quoted in the document. It includes, among other things, the title search and title insurance, lawyers' fees, transfer taxes, and filing fees. The total amount as mentioned in the good faith estimate is in addition to the down payment that you will need to make. As per new rules, there are limitations to the bank altering the rates of interest as mentioned in the GFE. The newly laid down regulations clearly state that the bank cannot alter the rate of interest by more than 0.125%. Hence, this puts a good control over the bank increasing the rates, as some banks do resort to drastic changes in rates, especially after a customer has decided to take a loan from that lender or bank.
Most of the costs that are included in the GFE are related to closing and settlement costs. These costs are divided into different categories and are bifurcated depending upon the type of costs. These costs are numbered and fall in different series, starting from the 800 series to 1300 series. While 800 series cater to costs concerned with loan application and processing charges, 900 series involves payments to be made towards insurance premiums. 1000 series is related to reserves while 1100 series concerns title expenses such as title inspection and title charges. The 1200 series includes all payments connected with government regulations such as registration charges while the 1300 series covers all final settlement expenses.
It is also necessary to understand as to how to read a GFE, as some banks may try to take advantage of the customer’s ignorance and include some unwanted expenses, by way of which they might make some money by unfair means.
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