Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
What do you understand by the term Good Faith Estimate (GFE)?
A form that a lender must give you that outlines the estimated costs when you apply for a reverse mortgage is called a GFE or Good Faith Estimate.
The basic information about the terms of the mortgage loan offer is listed in a good faith estimate. It enables a borrower to compare shop amongst different lenders and select one that fits their need.
The estimated costs for the mortgage loan are included in the good faith estimate. The basic information about a loan is provided by a good faith estimate.
Under the Real Estate Settlement Procedure Act (RESPA), within three business days of receiving your application or other required information, the lender must provide you with a GFE.
Before receiving a GFE You could be charged a credit report fee. But, no other fees can be charged until you get the GFE and go ahead and agree on wanting to proceed with the mortgage loan.
Since October 2015, GFEs applies only to people seeking reverse mortgages, for other types of home loans, loan estimate forms are being used. The costs noted on the form are not always accurate they are only estimates.
Loans that enable seniors aged 62 and older to convert their home equity into lump-sum amounts, fixed payments, or lines of credit (LOCs) are what reverse mortgages are.
How does a Good Faith Estimate (GFE) Work?
A GFE helps to compare offers from various lenders and brokers.
The borrower can examine the breakdowns and contract terms once the document is received and then decide if they want to proceed with the mortgage loan from that particular financial institution.
Consumers can understand the terms of the mortgage as the form is written in clear language and know for which mortgage are they applying so borrowers can shop around and get multiple estimates before choosing a loan or a lender.
The homeowner seeking a reverse mortgage will be provided with a GFE within three business days of receiving their application by the bank or financial institution.
All the costs related to the loan, like taxes, title charges, closing costs, and administrative fees, also any other terms and conditions of the loan, also policies regarding payback are included as a breakdown in the form.
There could be some exploitative lenders, who may add their fees or charge excessive fees for administrative items such as wire transfers we suggest you beware of them.
Information about the approximated costs of taxes and insurance and how the interest rate and payments may change in the future is all provided in the official standardized estimate forms.
Limitations of a Good Faith Estimate (GFE)
The costs on the form provide only estimates and only provide a rough idea of how much a borrower may be expected to shell out in order to get the loan and the expectation from them before and after the loan is due.
When everything is finalized the actual costs might ultimately be higher or lower.
Between the good faith estimate and the actual closing costs, there are legitimate reasons for discrepancies.
All the costs of closing services provided by third parties may not be known by the lender, which can be termed as the hidden cost of owning a home.
Difference between a Good Faith Estimates (GFE) and a Loan Estimate Forms
GFEs applies only to reverse mortgages. After October 2015 for anyone seeking other types of mortgages were replaced with loan estimate forms.
Loan estimates are an industry standard, like GFEs. Within three business days of their applications, they must be provided to mortgage applicants and should provide a breakdown of costs, terms, and conditions.
The document allows borrowers to compare costs between lenders just like the GFE.
Special Considerations
For Borrowers applying with a home equity line of credit (HELOC), which is a manufactured housing loan that is not secured by real estate, or a loan through certain types of homebuyer assistance programs receive truth-in-lending disclosures and are not provided with GFEs or loan estimates.
Conclusion
Just because you receive a good faith estimate, you don’t have to take the mortgage loan. Before choosing a loan or a lender, you can shop around and get multiple good faith estimates.
