Explaining the Good Faith Estimate

Explaining the Good Faith Estimate

As many homebuyers will agree, shopping for a loan can be a confusing and stressful ordeal. There are numerous lenders and companies to choose from, lots of questions to answer forms to fill out. But rest assured, you do not have to be a financial wizard to figure it out. Lenders are now required to provide any loan applicant with a good faith estimate, a useful little worksheet designed to clarify the process.

A good faith estimate is an itemized list of fees and costs that are associated with a loan. Basically, this estimate will tell the applicant how much they will need to pay in fees at closing. This information is good to know as the fees at closing can amount to roughly 3-5% of the sales price. And when applying for the loan, lenders are required to provide a good faith estimate within three business days of the application, in order to allow the applicant to shop around.

When shopping for a loan, it is important to do just that-shop around. A lending best practice is to compare costs between lenders, and a good faith estimate is vital to this process. There are many types of fees that are associated with a closing: lender-controlled, third party, and government. A good faith estimate will help you visualize how the fees fluctuate from lender to lender. The lender-controlled fees are the primary costs that will change between companies. Third-party fees, like those from attorneys or a title office, generally stay the same, but can change. And then government fees will not change. But a good faith estimate, from any lender, will break these fees down for the applicant and give them a good guess as to closing costs.

When shopping for a loan, it is important to remember that a good faith estimate is just an estimate. It is not a concrete or finalized number and changes can happen.

It is the best tool when shopping for a loan because lenders are required by law to provide the good faith estimate within three business days. It can help you make a decision quickly.