GFE - Good Faith Estimate
Print This Post
The federal Real Estate Procedures Settlement Act (RESPA) requires that loan originators give potential borrowers estimates and disclosures of all costs associated with the loan, including the lenders fees and other closing costs. The document that lists these fees and costs is known as the good faith estimate or GFE.
The GFE is just what it says. It is an estimate of settlement costs and the estimate is made in good faith. Estimates are not necessarily exact. Things can change between application and settlement. That is where the good faith part comes in. Making an estimate in good faith means that the estimator tries very hard to get the estimate as close as possible. This does not mean dead-on accurate; it means close.
Good faith also means close based on what is known or reasonably assumed when the GFE is prepared. Things can change. Every now and then there is a surprise.
The lender should prepare the GFE. If there is a broker involved, the broker is supposed to give the applicant a GFE, but it isn’t a good idea to rely on that.
The GFE is due to the customer either when you take the application or within three days of taking the application. The lender can meet this timing requirement if you get the GFE in the mail within three days of taking the application.
There is no signature requirement for the GFE. Many banks have procedures which call for the applicants’ signatures on the GFEs. This is a precaution but not a regulatory requirement.
What Shoulds be Shown on the GFE?
The GFE should include all of the settlement service costs but not costs related to the sale. The GFE, is primarily concerned about the costs of settlement rather than the costs of credit.
These includes broker fees, points and other fees based on the loan, odd-days interest, insurance premiums, escrow payments, and fees for title and lien perfection. The GFE should include the borrower’s hazard insurance, even when the borrower already has the insurance, as in the case of a refinancing.
It is assumed there are settlement costs even when there are “none” as in a “no-closing-cost” loan. The GFE should show all settlement costs, regardless of who pays them and when they are paid.
Costs that are based on the loan amount may be shown as a percentage, such as “1% of loan.” Costs may also be shown as ranges when precise amounts are not yet known. But the ranges should be reasonable and realistic. For example, estimating hazard insurance as “$400 to $600″ is reasonable. Estimating insurance to be “$250 to $1,000″ is too big a range.
A Few More Related Articles of Interest: