Good faith estimate
Encyclopedia
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 three 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.
The following is a list of the typical charges. Each charge starts with a number – the same number is the number of the charge on a HUD-1 Real Estate Settlement Statement. This makes it easier to compare the charges a loan applicant receives on the good faith estimate to the HUD-1.
800 ITEMS PAYABLE IN CONNECTION WITH LOAN:
This fee is a charge for originating or creating the loan
This is an upfront charge paid to the lender to get a lower mortgage
rate – the same as “buying the rate down”
This is the cost of the independent appraisal
. It is usually paid by the buyer.
This is the cost of the credit report
This is the lender's cost of inspecting a property – some may double check the appraisal provided by an independent appraiser
This is the upfront charge that a mortgage broker charges. Brokers can also earn a “rebate” from the lender which is not listed here
Lender fee, usually small, for handling tax related matters
This is the charge for processing the loan – collecting the buyer's application, running credit, collecting pay stubs, bank statements, ordering appraisal, title, etc.
This is the cost of the loan underwriter (approver)
This is the cost of wiring the money around, which is usually done by escrow
.
900 ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE
This is the prepaid interest for a mortgage loan.
This is the prepaid mortgage insurance premium, if needed. This is the insurance premium some lenders charge for loans with little equity.
This is used to record hazard insurance premiums that must be paid at settlement in order to have immediate insurance on the property. It is not used for insurance reserves that will go into escrow.
This is the Veterans Administration
funding fee, which is only applicable if the loan is through a VA program.
1000 RESERVES DEPOSITED WITH LENDER
This is any prepayment of future hazard insurance expense
This is any prepayment of future mortgage insurance expense
This is any prepayment of future school tax expense
This is any prepayment of future tax expenses, such as property taxes
This is any prepayment of future flood insurance expense
This is a credit to the buyer. By law, the lender is not allowed to collect more than the sum of initial payments for reserve items. The aggregate adjustment is the amount the lender must 'credit' the borrower at closing, so that they don't collect more than the law allows.
1100 TITLE CHARGES
This is the cost of escrow. This is the service of a neutral party that actually handles the money between all the different parties in a real estate transaction, including: the lender, the buyer, the seller, the agents, notary, etc. This is often done by the “Title Company” – a related entity in the same office that provides title insurance
This is the charge for preparing the loan documents. Lenders often email the loan documents to the escrow company, which in turn prints them out and reviews them before signing. However, some title companies are owned by an attorney who will also draw certain legal documents for the buyer's closing.
This is the cost of the notary
. This is to have all of the legal documents surrounding this transaction notarized. When closing inside the title company office, there is usually no charge for this.
Any legal charges associated with clearing the title to the property.
This is the cost of insuring the title of the property. If there is a question about title (who really owned the property), or if a judgment or lien was really paid off, after the transaction is done then this insurance protects the lender and owner from future problems.
1200 GOVERNMENT RECORDING & TRANSFER CHARGES
This is the cost of updating relevant government records
Unavoidable government charge
Unavoidable government charge
Many counties now allow documents to be recorded electronically. This expedites the issuance of a title policy by several weeks.
1300 ADDITIONAL SETTLEMENT CHARGES
Anything 'extra' that is not included in the 800-1200 charges are itemized in the 1300 section. This includes things like the survey, HOA fees, and repairs.
This is the cost of the pest inspector. Their purpose is to document the state of the property that the lender is making the loan on.
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
lender or broker
Broker
A broker is a party that arranges transactions between a buyer and a seller, and gets a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal...
in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
to a customer, as required by the Real Estate Settlement Procedures Act
Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act , was an act passed by the United States Congress in 1974. It is codified at Title 12, Chapter 27 of the United States Code, .- Purpose :...
(RESPA). The estimate must include an itemized list of fees and costs associated with the loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
and must be provided within three 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
Title insurance
Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the...
, 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.
Fees and charges
The fees included within a good faith estimate fall into six basic categories:- Loan fees
- Fees to be paid in advance
- Reserves
- Title charges
- Government charges
- Additional charges
The following is a list of the typical charges. Each charge starts with a number – the same number is the number of the charge on a HUD-1 Real Estate Settlement Statement. This makes it easier to compare the charges a loan applicant receives on the good faith estimate to the HUD-1.
800 ITEMS PAYABLE IN CONNECTION WITH LOAN:
- 801 - Loan Origination Fee
This fee is a charge for originating or creating the loan
- 802 - Loan Discount
This is an upfront charge paid to the lender to get a lower mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
rate – the same as “buying the rate down”
- 803 - Appraisal Fee
This is the cost of the independent appraisal
Real estate appraisal
Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...
. It is usually paid by the buyer.
- 804 - Credit Report
This is the cost of the credit report
- 805 - Lender's Inspection Fee
This is the lender's cost of inspecting a property – some may double check the appraisal provided by an independent appraiser
- 808 - Mortgage Broker Fee
This is the upfront charge that a mortgage broker charges. Brokers can also earn a “rebate” from the lender which is not listed here
- 809 - Tax Related Service Fee
Lender fee, usually small, for handling tax related matters
- 810 - Processing Fee
This is the charge for processing the loan – collecting the buyer's application, running credit, collecting pay stubs, bank statements, ordering appraisal, title, etc.
- 811 - Underwriting Fee
This is the cost of the loan underwriter (approver)
- 812 - Wire Transfer Fee
This is the cost of wiring the money around, which is usually done by escrow
Escrow
An escrow is:* an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of...
.
900 ITEMS REQUIRED BY LENDER TO BE PAID IN ADVANCE
- 901 - InterestInterestInterest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....
for days X $ per day
This is the prepaid interest for a mortgage loan.
- 902 - Mortgage Insurance Premium
This is the prepaid mortgage insurance premium, if needed. This is the insurance premium some lenders charge for loans with little equity.
- 903 - Hazard Insurance Premium
This is used to record hazard insurance premiums that must be paid at settlement in order to have immediate insurance on the property. It is not used for insurance reserves that will go into escrow.
- 905 - VA Funding Fee
This is the Veterans Administration
United States Department of Veterans Affairs
The United States Department of Veterans Affairs is a government-run military veteran benefit system with Cabinet-level status. It is the United States government’s second largest department, after the United States Department of Defense...
funding fee, which is only applicable if the loan is through a VA program.
1000 RESERVES DEPOSITED WITH LENDER
- 1001 - Hazard Insurance Premiums # months @ $ per month
This is any prepayment of future hazard insurance expense
- 1002 - Mortgage Ins. Premium Reserves months @ $ per month
This is any prepayment of future mortgage insurance expense
- 1003 - School Tax months @ $ per month
This is any prepayment of future school tax expense
- 1004 - Taxes and Assessment Reserves months @ $ per month
This is any prepayment of future tax expenses, such as property taxes
- 1005 - Flood Insurance Reserves months @ $ per month months
This is any prepayment of future flood insurance expense
- 1008 - Aggregate Accounting Adjustment
This is a credit to the buyer. By law, the lender is not allowed to collect more than the sum of initial payments for reserve items. The aggregate adjustment is the amount the lender must 'credit' the borrower at closing, so that they don't collect more than the law allows.
1100 TITLE CHARGES
- 1101 - Closing or Escrow Fee
This is the cost of escrow. This is the service of a neutral party that actually handles the money between all the different parties in a real estate transaction, including: the lender, the buyer, the seller, the agents, notary, etc. This is often done by the “Title Company” – a related entity in the same office that provides title insurance
- 1105 - Document Preparation Fee
This is the charge for preparing the loan documents. Lenders often email the loan documents to the escrow company, which in turn prints them out and reviews them before signing. However, some title companies are owned by an attorney who will also draw certain legal documents for the buyer's closing.
- 1106 - Notary Fees
This is the cost of the notary
Notary public
A notary public in the common law world is a public officer constituted by law to serve the public in non-contentious matters usually concerned with estates, deeds, powers-of-attorney, and foreign and international business...
. This is to have all of the legal documents surrounding this transaction notarized. When closing inside the title company office, there is usually no charge for this.
- 1107 - Attorney Fees
Any legal charges associated with clearing the title to the property.
- 1108 - Title Insurance
This is the cost of insuring the title of the property. If there is a question about title (who really owned the property), or if a judgment or lien was really paid off, after the transaction is done then this insurance protects the lender and owner from future problems.
1200 GOVERNMENT RECORDING & TRANSFER CHARGES
- 1201 - Recording Fees
This is the cost of updating relevant government records
- 1202 - City/County Tax/Stamps
Unavoidable government charge
- 1203 - State Tax/Stamps
Unavoidable government charge
- 1204 - Electronic Recording Fee
Many counties now allow documents to be recorded electronically. This expedites the issuance of a title policy by several weeks.
1300 ADDITIONAL SETTLEMENT CHARGES
Anything 'extra' that is not included in the 800-1200 charges are itemized in the 1300 section. This includes things like the survey, HOA fees, and repairs.
- 1302 - Pest Inspection
This is the cost of the pest inspector. Their purpose is to document the state of the property that the lender is making the loan on.
See also
- Title insurance in the United States
- United States Department of Housing and Urban DevelopmentUnited States Department of Housing and Urban DevelopmentThe United States Department of Housing and Urban Development, also known as HUD, is a Cabinet department in the Executive branch of the United States federal government...
- Truth in Lending ActTruth in Lending ActThe Truth in Lending Act of 1968 is United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed...
- Predatory lendingPredatory lendingPredatory lending describes unfair, deceptive, or fraudulent practices of some lenders during the loan origination process. While there are no legal definitions in the United States for predatory lending, an audit report on predatory lending from the office of inspector general of the FDIC broadly...
- Annual percentage rateAnnual percentage rateThe term annual percentage rate , also called nominal APR, and the term effective APR, also called EAR, describe the interest rate for a whole year , rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc. It is a finance charge expressed as an annual rate...
- Real estate contractReal estate contractA real estate contract is a contract for the purchase/sale, exchange, or other conveyance of real estate between parties. Real estate called leasehold estate is actually a rental of real property such as an apartment, and leases cover such rentals since they typically do not result in recordable...