What Is a Good Faith Estimate (GFE)?
Let me explain what a good faith estimate, or GFE, really is. It's a document that lays out the estimated costs and terms of a reverse mortgage loan offer. This allows you, as a borrower, to shop around and compare what different lenders are offering so you can pick the one that suits you best.
Under the Real Estate Settlement Procedures Act (RESPA), lenders used to have to give these to consumers within three days of any regular mortgage application. But things changed in October 2015—now GFEs are only for reverse mortgages, and for other home loans, they've introduced loan estimate forms instead.
Key Takeaways
A GFE gives you a fair assessment of the fees, costs, and terms you can expect with a potential mortgage. Remember, these now only apply to reverse mortgages, and similar forms handle other types of home loans. You should get your GFE within three business days after applying. It's smart to shop around and get multiple estimates before deciding on a loan or lender. Just know that the costs on the form are estimates—they might not be spot-on accurate.
How a Good Faith Estimate (GFE) Works
A GFE lets you compare offers from different lenders and brokers directly. Once you have it, look over the breakdowns and terms, then decide if you want to move forward with that lender's mortgage.
The form uses clear language to help you understand the mortgage terms you're applying for. You can get multiple estimates to choose the best loan or lender. Since October 2015, GFEs are only for reverse mortgages—these are loans for seniors 62 and older that turn home equity into lump sums, fixed payments, or lines of credit.
If you're seeking a reverse mortgage, the bank or institution has to give you the GFE within three business days of your application. It breaks down all costs like taxes, title charges, closing costs, and admin fees, plus other terms including payback policies.
Important Considerations
Watch out for unscrupulous lenders who might add extra fees or overcharge for things like wire transfers. The standardized forms include info on estimated taxes, insurance, and how interest rates and payments could change. You might pay a credit report fee before getting the GFE, but no other fees just to receive it.
Limitations of a Good Faith Estimate (GFE)
The costs in the GFE are just estimates—they give you a rough idea of what you'll spend to get the loan and what's required before and after it's due. Actual costs could end up higher or lower when finalized. There are valid reasons for differences, like the lender not knowing all third-party closing service costs, which can be hidden homeownership expenses.
Good Faith Estimates (GFE) vs. Loan Estimate Forms
As I mentioned, GFEs now only cover reverse mortgages. For other mortgages after October 2015, loan estimate forms took over. These are standard too—you get them within three business days of applying, with breakdowns of costs, terms, and conditions. Like GFEs, they help you compare lenders.
Special Considerations
If you're applying for a home equity line of credit (HELOC), a manufactured housing loan not secured by real estate, or certain homebuyer assistance program loans, you won't get a GFE or loan estimate. Instead, you'll receive truth-in-lending disclosures.
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