A Good Faith Estimate

  • February 06, 2015

When you apply for a mortgage, your lender is required to give you a “Good Faith Estimate” or “GFE” within three days. What is a Good Faith Estimate and why is it important?
The GFE is an estimate of your costs to obtain the mortgage, as well as other important information about your loan. The GFE is important for two reasons:
·  It discloses all of the fees, so there won’t be any surprises at loan closing.
·  It helps you make an apples-to-apples comparison of the mortgage offers from different lenders.
Let’s take a closer look at what you’ll learn inside your Good Faith Estimate:
·  Loan terms: including the amount you’re borrowing, initial interest rate and your estimated monthly principal and interest payment. (Your actual payment will likely be higher, because it will need to also include homeowner’s insurance and property taxes.)
·  Estimated monthly escrow payment: which includes homeowner’s insurance and property taxes. Combined with your principal and interest payment, this will add up to and estimate your total monthly mortgage payment.
·  Estimated closing costs: the cash you’ll need to have on hand at closing. This includes the fees to originate your loan and down payment, less credits you may have for an initial deposit and/or other sources.
·  Itemization of fees: which includes the costs to originate the loan (such as origination/discount points, application fee and underwriting fee), prepaid interest, initial escrow payment, property appraisal, credit report, title search, title insurance and other fees, as applicable.
·  Your total interest cost: The amount of interest you’ll pay over the life of the loan, when you make monthly payments over the full term. If you make extra principal and interest payments, or pay off the mortgage early because you’re refinancing or selling your home, your total interest cost will be less.
·  Your Annual Percentage Rate (APR): representing the total cost of obtaining your mortgage, after all the fees are included. The APR is an excellent way to compare the total costs from lender to lender. It’s important to keep in mind that your APR is NOT your interest rate.

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