How to Read a Good Faith Estimate
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
Among all the paperwork that is exchanged during the home buying process, the Good Faith Estimate is arguably the most important piece of information a mortgage lender will give you.
A Good Faith Estimate, or GFE, is a document your lender gives you that describes the basic terms of the loan and estimates how much it will cost in total.
By law, a lender must give you a GFE within 3 business days of applying for the loan.
Understanding your GFE
The format of the GFE should look the same no matter which lender you use, though the forms may vary slightly from state to state, says Kelly Zoudo, vice president and branch manager at 1st Advantage Mortgage in Illinois.
“I tell all my clients to take a look at the whole thing with a microscope,” he says. Know what you’re verifying, “and make sure that what your lender tells you verbally and what is written down is all the same.”
(Financing your new home? Gather this paperwork before you head to the bank.)
Here’s what you can expect to see when you review your GFE:
On the top of the form, you’ll see the name and contact information for your loan originator, along with your name and the address of the property you’re purchasing.
You will also see the date the form was prepared or disclosed, followed by a section of important dates. The terms outlined in your GFE are only valid for a set amount of time, so this section spells out for how long the interest rate, estimated charges, interest rate lock are valid.
The summary section will tell you the total loan amount (the loan balance minus the down payment), the loan term (the number of months you will pay the loan), your interest rate, and your monthly payment, which includes mortgage insurance if you have it.
It should also tell you if your monthly payments or loan balance are eligible to rise even if you pay on time and whether you have a prepayment penalty or a balloon payment. If any of these are checked “yes,” clarify what this means with your lender so you know what you’re getting into.
The next section will outline your escrow account. Some lenders require borrowers to establish an escrow account for property taxes and homeowner’s insurance. When that’s the case, a portion of each monthly payment you make is deposited into this account.
The final section outlines your settlement charges, which you will pay at closing.
“There are usually four items you pay for here: points charged for a specific interest rate, the appraisal, tax service, and the title fees, ,” Zoudo says. Companies lump together the processing and underwriting charges and call it an origination fee, which is the cost for getting the loan and is shown separately on the GFE.
You will also see the amount you’ll pay for transfer taxes or stamps and homeowner’s insurance.
All of these charges will be added up to comprise the total settlement charges you will owe the lender at closing.
There should be no surprises at closing
Most of these charges should not change when you sign your final settlement at closing. Some legally cannot change, such as the origination fees and transfer taxes. Other fees may change, but they cannot increase by more than 10 percent.
“If you’re dealing with a professional,” Zoudo says, “you shouldn’t expect to pay anything more than $50 beyond the estimate.”
In fact, you will likely pay less than the GFE indicates. Lenders are legally obligated to stick to that estimate as closely as possible, or they must re-disclose all of the information listed on the GFE along with the revised charges, Zoudo says.
All lenders must use the same GFE format, so you can easily compare both lenders and loan costs. You can also use the GFE as a way to compare the customer service level of a lender. Each lender you consult should take the time to make you feel comfortable with the form and the terms of your loan.
Ilyce Glink is the author of over a dozen books, including the bestselling 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In! Her nationally syndicated column, “Real Estate Matters,” appears in newspapers from coast-to-coast, and her Expert Real Estate Tips YouTube channel has nearly 4 million views. She is the managing editor of the Equifax Finance Blog, publisher of ThinkGlink.com, and owner of digital communications agency Think Glink Media. In addition to her WSB radio show and WGN radio contributions, she is also a frequent guest on National Public Radio. Ilyce is a frequent contributor to Yahoo and CBS News.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.