The Housechick Blog

The Good Ladies at Long Mortage bring us an explanation of Good Faith Estimates, and how to compare apples to apples using GFEs.

Comparing good faith estimates is a very important step in the mortgage selection process. Knowing a little bit about Good Faith Estimates, or GFEs, can be very beneficial to your success at saving money when purchasing a home.

So what’s a Good Faith Estimate?

The Good Faith Estimate is simple - it shows you how much it is it going to cost you up-front and long term for this mortgage. Sound simple? Well read on. 

I would recommend comparing at least 2-3 Good Faith Estimates. The Lender should be able to ask you a few questions to determine what programs would fit your needs and provide you with a good faith estimate without pulling your credit. These estimates will provide a pretty good average of what it will cost you for your new mortgage.

Some basic principles are that your loan consists of a mortgage program, rate, term, and fees that go along with getting the mortgage.  The mortgage rates, terms and fees may be negotiable.  Keep in mind that when you try to save money in one area than another area could be affected. For example, every thousand dollars you save in costs at the closing could ultimately raise the interest rate you negotiate.  Discuss with your lender to see what works best for you. A good faith estimate should be provided free as well as advice to help you make the right choice for you and your family.

So how do you compare Good Faith Estimates?

Let’s start with the loan program, loan terms and interest rate.  After you have determined what loan program is right for you, (30 or 15 year mortgage, Fixed/Adjustable rate, Full Doc, stated income, etc.) then a rate can be determined.  Each lender, knowing these facts, should provide you with their interest rate, fees and costs. Now you have something to compare.

The fees are where mortgage lenders and mortgage brokers become creative.  If you are dealing with an honest and reputable mortgage company, then your comparison job is very easy.  Honest companies follow guidelines when they create Good Faith Estimates, so if everyone follows the guidelines, comparing fees side by side is simple and quick.

Each section of a Good Faith Estimate is numbered. Looking closely at the 800 section of the good faith estimate, it’s a great starting place to compare.  This section is at the top and is called “Items payable in connection with loan”.  These fees can and sometimes should be negotiated.  When comparing good faith estimates, add up what you see in this section and compare them against others, because this is about the only area you have after the interest rate is determined.   

The rest of the good faith estimates are fees that will be the same no matter what financial institution you use. Section 1100 includes Title charges and Section 900 & 1000 includes Items required by lender to be paid in advance and Escrow reserve deposited with lender.

Just beware, apply this bit of knowledge and good luck comparing Good Faith Estimates. AND don’t ever hesitate to ask questions.