My real estate agent says that I should get a Good Faith Estimate (GFE) from my lender. What’s faith got to do with a real estate deal?
You Realtor® is talking about the GFE (good Faith Estimate) that your lender is required by law to give you up front to show you the estimated costs involved in doing the loan with him/her. From Wikipedia comes this explanation –
A good faith estimate, referred to as a GFE, must be provided by a mortgage lender or broker in the United States to a customer, as required by the Real Estate Settlement Procedures Act (RESPA).The estimate must include an itemized list of fees and costs associated with the loan and must be provided within 3 business days of applying for a loan.
These mortgage fees, also called settlement costs or closing costs, cover every expense associated with a home loan, including inspections, title insurance, taxes and other charges.
A good faith estimate is a standard form which is intended to be used to compare different offers (or quotes) from different lenders or brokers.
The good faith estimate is only an estimate. The final closing costs may be different; however the difference can only be 10% of the third party fees. Once a good faith estimate is issued the lender/broker cannot change the fees in the origination box.
So, this is a written estimate of your costs with that lender to buy the house that you want. Getting a GFE is a helpful way to allow you to shop around or at least to better understand how much you’ll really need to close the sale. Most first-time buyers focus solely on the sale price and don’t stop to consider all of the other costs involved. The GFE brings those to light. Sometimes you have to stay on your lender’s case to get them to share the GFE with you, so keep track of the date that you actually signed the loan application.
The GFE can also illustrate for you how much “sunk money” you’ll have into the place before you even make your final decision to move ahead. Both the inspection cost and the mortgage application fee (usually used by the lender to cover the cost of the appraisal) are non-refundable. If you get to the end of the inspection and decide that you really don’t want the house, you may be able to get out of the deal before your lender has assessed the mortgage application fee. By the time you get the inspection done and the mortgage applied for you may well have $600-800 invested that you’ll never get back if you walk away.
The GFE will also highlight for you things like the cost of insuring the place and any closing costs that you are responsible for paying, like points on the loan or the registration of the new deed at the county. It will detail the Owners Title Policy cost that you have to pay and should at least estimate the tax proration that you will be responsible for paying. All of the little fees that the lender tacks on will be shown too. Sometimes you can argue those and get a few removed, but at least you’ll know what they are.
You can read about the GFE and see all of the categories of fees and charges by clicking here to go to the Wikipedia page. Your lender is not required to give you a GFE until you actually apply for the loan through them. A good loan officer should be able to give you a pretty good idea of the costs just in discussions with him/her, but the GFE will break out the numbers and detail each cost.
Based upon getting the GFE you will know how much you need to bring to closing in addition to the actual money to pay the sale price. In some cases you might have negotiated a Seller’s Concession to cover closing costs as a part of the contract. You’ll be able to see with the GFE if you asked for enough to cover everything or still need to bring some money to closing. Don’t get excited if you actually asked for more that the GFE states you will need; you’re not going to get money back from the seller for buying their house. Seller’s Concessions usually have clauses that the amount to be conceded at closing cannot exceed the actual closing costs for the buyer. That concession excess just goes back to the seller.
When you get the final HUD-1 documents for the closing you should compare the charges on it to the GFE. The law states that they cannot be different by more than 10%. So your lender can’t give you a lowball GFE and hit you up with bigger fees at closing, especially on the charges that they control. Make sure that you cross reference all of the charges on the HUD to the same figures on the GFE and ask questions about any differences, especially any large differences.
So, while you may have faith in your lender, you should still make sure that you get a GFE from them and look at the fees and charges that they have estimated. You Realtor should be able to help with that and may recommend that you shop around a bit, if he/she sees excessive charges on your GFE.
