Good Faith Estimate

Definition

A Good Faith Estimate (GFE) is a standardized form that lists the estimated costs to close a mortgage loan. This form is required by the Real Estate Settlement Procedures Act (RESPA) and must be provided by lenders to borrowers within three days following a loan application. The GFE is designed to help borrowers understand the different costs involved in the mortgage process, compare costs between lenders, and avoid any surprises at the closing table. The estimates provided, while not exact, must reflect the lender’s best efforts to be as accurate as possible.

Examples

Example 1:
Gwen applied for a mortgage loan on a duplex. Within three days, the mortgage banker sent a Good Faith Estimate of the closing costs, including points, origination fees, title insurance, and legal expenses.

Example 2:
John is buying his first home and went to apply for a mortgage. Shortly after the application was submitted, John received a Good Faith Estimate that detailed all potential costs, helping him to plan his finances better.

Frequently Asked Questions (FAQs)

1. What is included in a Good Faith Estimate?
A GFE includes information about loan terms, interest rates, and a breakdown of estimated costs for services needed to close the loan including origination fees, title insurance, escrow fees, and other charges.

2. When do I receive the Good Faith Estimate?
You must receive the GFE within three business days of completing your loan application.

3. Is the Good Faith Estimate accurate?
The figures on the GFE are not final but should be a close approximation based on the lender’s best knowledge and good faith effort.

4. Why is a Good Faith Estimate necessary?
It ensures transparency and helps you to compare different loan offers, avoiding any hidden surprises during closing.

5. What happens if the final closing costs are higher than the GFE?
In certain situations, lenders are held accountable for the accuracy of estimates and may face penalties if the final costs exceed the estimates provided in the GFE.

Closing Costs:
Expenses incurred by buyers and sellers to complete a real estate transaction. Commonly included are loan origination fees, title search fees, insurance, appraisal fees, and legal fees.

Real Estate Settlement Procedures Act (RESPA):
A federal law designed to protect homebuyers by requiring lenders to provide detailed cost disclosures, including the GFE, and prohibiting certain practices such as kickbacks and referral fees that can increase the cost of loans and settlements.

Loan Estimate:
A document that replaced the Good Faith Estimate under the TILA-RESPA Integrated Disclosure (TRID) rule. Provides similar information under a new format.

Online Resources

References

U.S. Department of Housing and Urban Development. “The Real Estate Settlement Procedures Act (RESPA).” Accessed [Date].
Consumer Financial Protection Bureau. “Understand the Loan Estimate.” Accessed [Date].

Suggested Books for Further Study

“Real Estate Principles: A Value Approach” by David Ling and Wayne Archer
“Mandler’s Handbook of Residential Mortgage Lending” edited by Christine A. Mandler
“Real Estate Finance and Investments: Risks and Opportunities” by Peter Linneman and Bruce Kirsch

Real Estate Basics: Good Faith Estimate Fundamentals Quiz

### Within how many days must a Good Faith Estimate be provided to a mortgage applicant? - [x] Three days - [ ] Five days - [ ] Seven days - [ ] Ten days > **Explanation:** The GFE must be provided within three business days of the loan application to comply with RESPA regulations. ### Does the Good Faith Estimate provide the exact final closing costs? - [ ] Yes, the GFE lists the exact final costs. - [x] No, it provides estimated costs. - [ ] The GFE only lists administrative fees, not total costs. - [ ] The GFE is a rough approximation without legal value. > **Explanation:** The GFE offers estimates based on the lender's good faith effort and is not the final closing cost. ### What federal law mandates the provision of the Good Faith Estimate? - [ ] Truth in Lending Act (TILA) - [ ] Fair Credit Reporting Act (FCRA) - [x] Real Estate Settlement Procedures Act (RESPA) - [ ] Dodd-Frank Act > **Explanation:** RESPA mandates that lenders provide a Good Faith Estimate to inform borrowers of expected closing costs. ### What purpose does the Good Faith Estimate serve in the mortgage process? - [ ] Determines loan approval eligibility - [x] Provides a breakdown of estimated closing costs - [ ] Sets the interest rate for the loan - [ ] Assesses property values > **Explanation:** The GFE serves to inform borrowers about the estimated costs associated with closing a loan, helping them understand and compare financial obligations. ### Which of the following is NOT typically included in a Good Faith Estimate? - [ ] Origination fees - [ ] Title insurance - [ ] Appraisal fees - [x] Monthly mortgage payments > **Explanation:** The GFE does not include ongoing monthly payments but focuses on one-time closing costs and fees. ### If actual closing costs exceed those estimated in the GFE, what might ensue? - [ ] Nothing, the GFE is just a formality. - [x] Lenders might face penalties or be required to cover discrepancies. - [ ] Borrowers must always pay any exceeded amount. - [ ] The borrower must file a complaint with HUD. > **Explanation:** Lenders can be held accountable for inaccuracies and may face penalties if actual costs significantly exceed the provided GFE estimates. ### Under the new regulations, what document has largely replaced the Good Faith Estimate? - [ ] Statement of Settlement Costs - [ ] Mortgage Appraisal - [x] Loan Estimate - [ ] Credit Report Disclosure > **Explanation:** The Loan Estimate document, introduced as part of the TILA-RESPA Integrated Disclosure (TRID) rule, has largely replaced the GFE. ### When was the Good Faith Estimate replaced by the Loan Estimate for most transactions? - [ ] 2013 - [x] 2015 - [ ] 2017 - [ ] 2010 > **Explanation:** The GFE was replaced by the Loan Estimate document in 2015 as part of regulatory changes. ### What kind of financing does the Good Faith Estimate specifically apply to? - [x] Residential loans on one to four units - [ ] Commercial loans only - [ ] Multi-family property loans - [ ] Personal loans and mortgages > **Explanation:** The GFE specifically applies to residential loans for one- to four-unit properties. ### Which organization oversees the regulations regarding the provision of a Good Faith Estimate? - [ ] Federal Reserve - [ ] Federal Trade Commission (FTC) - [x] Consumer Financial Protection Bureau (CFPB) - [ ] Department of Commerce > **Explanation:** The Consumer Financial Protection Bureau oversees and enforces regulations related to the provision of the GFE among other disclosures.