Mortgage Good Faith Estimate Overview

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated November 6, 2020

According to federal law, a lender must provide a Good Faith Estimate of the key terms of a mortgage including interest rate and closing costs, at the time the borrower submits a loan application.  The Good Faith Estimate is a powerful tool that the borrower can use to review and compare mortgage proposals from various lenders.  If a lender is unwilling to provide a Good Faith Estimate at the time you submit a mortgage application or request a mortgage proposal, this raises a significant red flag and you should consider working with other lenders.  Additionally, just because you submit a mortgage application or receive a Good Faith Estimate from a lender does not mean you are obligated to work with that lender.

We recommend that you review Good Faith Estimates from multiple lenders carefully before selecting a lender to work with on your mortgage.  There are some key points about the Good Faith Estimate to highlight:

• The Good Faith Estimate is a standard document that will be the same across all lenders. The figures change as proposals vary across lenders, but the form itself will remain the same – this allows you to more easily compare proposals from various lenders
• As the name suggests, the Good Faith Estimate is an estimate of key mortgage terms. Just because it is an estimate does not make it any less valuable for the borrower to compare mortgage proposals and create lender competition for your mortgage business.
• Use the Good Faith Estimate to shop mortgages and ensure that you are getting the best terms. This mandate is actually written on the form and we highly recommend this approach.
• Obtain Good Faith Estimate forms from multiple lenders and use the table at the bottom of page three of the Good Faith Estimate to compare proposals
• Prior to your mortgage closing, you can compare your Good Faith Estimate with the HUD-1 Statement to ensure that no additional lender costs or settlement agent charges have been added without your consent. The HUD-1 is a document that the closing agent must provide to borrowers that details the actual, final terms of your mortgage including total closing costs. Significant differences between the Good Faith Estimate and HUD-1 (e.g., an increase in interest rate or higher borrower costs), may be a sign that you are not getting the mortgage you thought you were.

When reviewing a Good Faith Estimate, the key figures to focus on are “Your Adjusted Origination Charges” which are the fees charged by the lender and “Your Charges for All Other Settlement Services” which are the fees charged by non-lender service providers such as the appraiser, title insurance company, escrow company and attorneys (if applicable).  Both of these figures are found on the bottom of page one and a breakdown of these figures is found on page two.  Settlement charges are another name for closing costs and the “Total Estimated Settlement Chargers” box at the bottom of page one provides a good estimate of total closing costs.

Review our Good Faith Estimate video tutorial

Good Faith Estimate Overview Video

Sources

“What is a Good Faith Estimate (GFE)?”  CFPB.  Consumer Financial Protection Bureau, August 4 2017.  Web.