Good Faith Estimate (GFE)

The good faith estimate (GFE) is a form that details the breakdown of settlement fees that must be paid at closing.

A lender must provide the GFE to a borrower within 3 business days of mortgage application.

It contains information like:

  • Loan origination fees
  • Processing fees
  • Underwriting fees
  • Insurance premiums
  • Loan amount
  • Interest rate
  • Monthly payment amount
  • Prepayment penalty
  • etc

Because of the limitations of GFE that undermines it’s purpose, it was phased out in October 2015 with the loan estimate and closing disclosure form.

The use of GFE is however retained for reverse mortgages.

The problem with good faith estimates

The main problem with GFE is that… it’s just an estimate…

This means that the numbers a borrower sees on their spreadsheet are neither a quote, an offer, or a contract.

It’s basically what a lenders estimates to be the closing costs of a loan at closing.

Should a lender indicate in the GFE that the closing costs would be $3,000 and when the actual closing arrives but the costs turn out to be $5,000, there’s little a borrower can do other than to pay or find some way to negotiate.

Lenders don’t even face any penalties for doing this.

This why even though the conceptualization of the good faith estimate come with good intentions, one cannot put too much weight on how dependable the numbers found in them are.

Only costs that are contained in written confirmation originating from lenders can be trusted.