What Is Included in a Good Faith Estimate?

A Good Faith Estimate (GFE) provides an upfront estimate of costs and terms associated with a mortgage loan. While the GFE has largely been replaced by the Loan Estimate form for most mortgage types since 2015, it remains in use for reverse mortgages. Both forms offer transparency, enabling consumers to make informed decisions and to compare loan offers.

Lender-Specific Charges

Mortgage lenders impose various charges for originating and processing a home loan, detailed in the GFE or Loan Estimate. An origination fee is charged by the lender for processing the mortgage, covering administrative services like application processing and loan underwriting. It is expressed as a percentage of the total loan amount, often ranging from 0.5% to 1%.

Another lender charge is discount points, essentially prepaid interest. Borrowers pay these upfront at closing to secure a lower interest rate on their mortgage. One discount point equals one percent of the loan amount, typically reducing the interest rate by 0.125% to 0.25%.

Additional lender charges include application and underwriting fees. An application fee might be collected when applying for the loan. The underwriting fee covers the lender’s cost to assess the loan application and borrower’s creditworthiness.

Third-Party Services You Can Shop For

A portion of mortgage costs involves third-party services where borrowers can choose their own providers. This ability to shop around can lead to significant savings on closing costs.

One shoppable service is title insurance, which protects against claims challenging property ownership. There are two main types: a lender’s policy, which is mandatory and protects the financial institution’s interest, and an owner’s policy, which is optional but recommended for homeowner protection. Both policies are paid for with a one-time fee at closing.

Other shoppable services include property surveys and attorney fees. A property survey verifies land boundaries and existing structures, ensuring no encroachments. Attorney fees are required in some jurisdictions to review legal documents, conduct title searches, and facilitate closing. These fees can vary, ranging from $500 to $1,500, depending on complexity and state requirements.

Third-Party Services You Cannot Shop For

Certain third-party services in the mortgage process are not shoppable, meaning the lender requires specific providers. These fees are essential for securing the mortgage and are disclosed on the GFE or Loan Estimate.

An appraisal fee is charged for a professional assessment of the property’s value, which the lender requires to ensure the loan amount is appropriate collateral. This fee helps protect both the lender from over-lending and the buyer from overpaying for the property. Appraisal costs typically range from $250 to $450, though they can be higher for more complex properties or in specific metropolitan areas. This fee is often non-refundable, even if the loan does not close.

Another non-shoppable fee is for the credit report, which lenders pull to evaluate a borrower’s creditworthiness and determine interest rates. Lenders pay a fee to credit bureaus for this information, which is then passed on to the borrower. While some sources suggest costs around $35, a tri-merge credit report can range from $100 to $250. This is one of the few fees a lender can charge before providing a Loan Estimate.

Flood determination fees are also typically non-shoppable, charged to determine if the property is located in a federally designated flood zone. This assessment helps the lender ensure proper flood insurance coverage is in place if required. Similarly, a tax service fee is charged by the lender to ensure that property taxes are paid on time throughout the loan term. This fee protects the lender’s interest by preventing tax liens that could take priority over their mortgage.

Initial Prepaid Items and Escrow Deposits

Beyond direct fees for services, a Good Faith Estimate also includes initial prepaid items and deposits into an escrow account, which are collected at closing. These are not fees for services but rather payments for ongoing property-related expenses. These amounts ensure that future obligations, like property taxes and insurance, are covered from the outset of the loan.

Prepaid interest covers the interest that accrues on the loan from the closing date until the end of the month in which the loan closes. Borrowers pay this daily interest upfront because the first full mortgage payment is typically due on the first day of the second month following closing. For example, if closing occurs mid-month, the borrower prepays interest for the remaining days of that month.

Initial homeowner’s insurance premiums are often collected at closing to ensure the property is insured from day one. This typically includes the first year’s premium. Additionally, lenders often require an initial deposit into an escrow account for property taxes and homeowner’s insurance. This escrow account acts as a savings fund, with a portion of the monthly mortgage payment going into it.

The funds held in escrow are then used by the lender to pay property tax bills and insurance premiums when they become due. Lenders often require a cushion in the escrow account, commonly equivalent to two months of these payments, to guard against unforeseen increases in taxes or insurance costs. This mechanism simplifies financial management for the homeowner by consolidating these payments within the mortgage.