Understanding
Your GFE
(Good Faith Estimate)
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The GFE is a 3 page form
designed to encourage you to shop for a
mortgage loan and settlement services so
you can determine which mortgage is best
for you. It shows the loan terms and settlement
charges you'll pay if you decide to go forward
with the loan process when you are approved
for the loan. It explains which charges
can change before your settlement and which
charges must remain the same. It contains
a shopping chart allowing you to easily
compare multiple mortgage loans and settlement
costs, making it easier for you to shop
for the best loan. The GFE may be provided
by a mortgage broker or the lender. Until
they give you a GFE, loan originators are
only permitted to charge you for the cost
of a credit report.
When
you've found a house and begin the loan
application process, the loan originator
will need your name, Social Security number,
gross monthly income, property address,
estimate of the value of the property, and
the amount of the mortgage loan you want,
in order to determine your GFE. Your Social
Security number is used to obtain a credit
report showing your credit history, including
past and present debts and the timeliness
of repayment.
Your
GFE Step-by-Step
Let's
go through the GFE step-by-step. The top
of page 1 shows the property address, your
name and contact information, and your loan
originator's contact information.
Important
Dates
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The
Important Dates section of the GFE includes
key dates of which you should be aware.
Line 1 - Discloses the date and time
the interest rate offer is good through.
Line 2 - Discloses the date “All
Other Settlement Charges” are good
through. This date must be open for at
least 10 business days from the date the
GFE was issued to allow you to shop for
the best loan for you.
Line 3 -
Discloses the interest rate lock time
period, such as 30, 45 or 60 days, that
the GFE was based on. It does
not mean that your interest rate is locked.
Line
4 discloses the number of days prior to
going to settlement that you must lock
your interest rate.
Note:
“Locking in” your rate and
points at the time of application or during
the processing of your loan will keep
the interest rate and points from changing
until the rate lock period expires.
Summary
of Your Loan
The
Summary of Your Loan Terms discloses your
loan amount, loan term, the initial interest
rate and the principal, interest and mortgage
insurance portion of your monthly mortgage
payment. It also informs you if your interest
rate can increase, if your loan balance
can rise, whether your mortgage payment
can rise and if there is a prepayment
penalty or balloon payment.
In
the example above, the loan amount is
$200,000 which will be paid over 30 years.
The initial interest rate is 5 percent
and the initial monthly mortgage payment
is $1,173 which includes mortgage insurance,
but does not include any amounts to
pay for property taxes and homeowner?s
insurances if required by the lender.
In our example, the loan has an adjustable
interest rate. Since the interest rate
can rise, the "yes? box was checked, and
the loan originator disclosed that the
initial interest rate of 5 percent could
rise as high as 10 percent. The first
time your interest rate could rise is
6 months after settlement which could
increase your payments to $1,290. Over
the life of your loan your monthly payments
could increase from $1,173 to $1,842.
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This
example does not contain a balloon payment
or a prepayment penalty. |
NOTE:
A prepayment penalty is a charge that is
assessed if you pay off the loan within
a specified time period, such as three years.
A balloon payment is due on a mortgage that
usually offers a low monthly payment for
an initial period of time. After that period
of time elapses, the balance must be paid
by the borrower, or the amount must be refinanced.
You should think carefully before agreeing
to these kinds of mortgage loans. If you
are unable to refinance or pay the balance
of the loan, you could put your home at
risk.
Escrow Account Information
The
GFE also includes a separate section referred
to as „„Escrow account information,??
which indicates whether or not an escrow
account is required. This account holds
funds needed to pay property taxes, homeowner?s
insurance, flood insurance (if required
by your lender) or other property-related
charges.
If the GFE specifies that
you will have an escrow account, you will
probably have to pay an initial amount at
settlement to start the account and an additional
amount with each month?s regular payment.
If you wish to pay your property taxes and
insurance directly, some lenders will give
you a higher interest rate or charge you
a fee. If your lender does not require an
escrow account, you must pay these items
directly when they are due.
Summary
of Your Settlement Charges
The
final section on page 1 of the GFE contains
the adjusted origination charges and the
total estimated charges for other settlement
services which are detailed on page 2. You
should compare the “Total Estimated
Settlement Charges” on several GFEs.
Page
2 of the GFE
The
price of a home mortgage loan is stated
in terms of an interest rate and settlement
costs. Often, you can pay lower total settlement
costs in exchange for a higher interest
rate and vice versa. Ask your loan originator
about different interest rates and settlement
costs options.
Your
Adjusted Origination Charges, Block A
Block
1, “Our origination charge”
contains the lender?s and the mortgage broker?s
charges and point(s) for originating your
loan.
Block 2, “Your credit
or charge point(s) for the specific interest
rate chosen.” |
- If
box 1 is checked, the credit or charge
for the interest rate is part of the
origination charge shown in Block 1.
- If
box 2 is checked, you will pay a higher
interest rate and receive a credit to
reduce your adjusted origination charge
and other settlement charges.
- If
box 3 is checked, you will be paying
point(s) to reduce your interest rate
and, therefore, will pay higher adjusted
origination charges.
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Note:
A point is equal to one percent of your
loan amount.
After adding
or subtracting Block 2 from Block 1, “Your
Adjusted Origination Charge” is shown
in Block A.
In the example shown,
the origination charge is $6,750. No points
were paid to reduce the interest rate. Instead,
because of the interest rate chosen, the
offer contains a $3,000 credit that reduces
the adjusted origination charge to $3,750.
Your
Charges for All Other Settlement Services,
Blocks 3 through 11
In
addition to the charges to originate your
loan, there are other charges for services
that will be required to get your mortgage.
For some of the services, the loan originator
will choose the company that performs the
service (Block 3). The loan originator usually
permits you to select the settlement service
provider for “Title services and lender?s
title insurance” (Block 4). “Owner?s
title insurance” is also disclosed
(Block 5). Other required services that
you may shop for are included in “Required
services that you can shop for” (Block
6).
Block
3 contains charges for required services
for which the loan originator selects the
settlement service provider. These are not
“shoppable” services and often
include items such as the property appraisal,
credit report, flood certification, tax
service and any required mortgage insurance.
Block 4 contains the charge for
title services, the Lender?s title insurance
policy and the services of a title, settlement
or escrow agent to conduct your settlement.
Block 5 contains the charge for
an Owner?s title insurance policy that protects
your interests.
NOTE:
Under RESPA, the seller may not require
you, as a condition of the sale, to purchase
title insurance from any particular title
company.
Block 6 contains charges
for required services for which you may
shop for the provider. Some of these items
may include a survey or pest inspection.
Block
7 contains charges by governmental entities
to record the deed and documents related
to the loan.
Block 8 contains charges
by state and local governments for taxes
related to the mortgage and transferring
title to the property.
Block 9 contains
the initial amount you will pay at settlement
to start the escrow account, if required
by the lender.
Block 10 contains
the charge for the daily interest on the
loan from the day of settlement to the first
day of the following month.
Block
11 contains the annual charge for any insurance
the lender requires to protect the property
such as homeowner?s insurance and flood
insurance.
Total
Estimated Settlement Charges
“Your
charges for All Other Settlement Services”,
Blocks 3 through 11, are totaled in Block
B. Blocks A and B are added together resulting
in the total estimated settlement charges
associated with getting the loan. These
Blocks are carried forward to the bottom
of page 1 of the GFE.
Page
3 of the GFE
Page
3 of the GFE contains important instructions
and information that will help you shop
for the best loan for you.
Understanding
which charges can change at settlement
There
are three different categories of charges
that you will pay at closing: charges that
cannot increase at settlement; charges that
cannot increase in total more than 10%;
and charges that can increase at settlement.
You can use this as a guide to understand
which charges can or cannot change. Compare
your GFE to the actual charges listed on
the HUD-1 Settlement Statement to ensure
that your lender is not charging you more
than permitted.
Written
list of settlement service providers
A
written list will be given to you with your
GFE that includes all settlement services
that you are required to have, and that
you are allowed to shop for. You may select
a provider from this list or you can choose
your own qualified provider. If you choose
a name from the written list provided, that
charge is within the 10% tolerance category.
If you select your own service provider,
the 10% tolerance will not apply.
Even
though you may find a better deal by selecting
your own provider, you should choose the
provider carefully as those charges could
increase at settlement. If your loan originator
fails to provide a list of settlement service
providers, the 10% tolerance automatically
applies.
Using
the tradeoff table
The “tradeoff table” on
page 3 will help you understand how your
loan payments can change if you pay more
settlement charges and receive a lower interest
rate or if you pay lower settlement charges
and receive a higher interest rate.
The
loan originator must complete the first
column with information contained in the
GFE. If the loan originator has the same
loan product available with a higher or
lower interest rate, the loan originator
may choose to complete the remaining columns.
If the second and third columns are not
filled in, ask your loan originator if they
have the same loan product with different
interest rates.
Using
the shopping chart
You can use this chart to compare
similar loans offered by different loan
originators. Fill in each column with the
information shown in the “Summary
of your loan” section from the first
page of all the GFEs you receive. Compare
each offer and select the best loan for
you.
After
You Choose the Best Loan for You
After
comparing several GFEs, select the best
loan for you and notify the loan originator
that you would like to proceed with the
loan. Keep your Good Faith Estimate
so you can compare it with the final settlement
costs stated on your HUD-1 Settlement Statement.
Ask the lender and settlement agent if there
are any changes in fees between your GFE
and your HUD-1 Settlement Statement. Some
charges cannot be increased, and your lender
must reimburse you if those charges were
illegally increased.
New
Home Purchases
If
you are purchasing a new home that is being
built or has not been built yet, your GFE
could change. If the GFE can change, the
loan originator must notify you that the
GFE may be revised at any time up to 60
days before settlement. If you get a revised
GFE, look at it to determine if the loan
and settlement costs it discloses are the
best for you.
Changed
Circumstances
If
there are changes involving your credit,
the loan amount, the property value, or
other information that was relied on in
issuing the original GFE, a revised GFE
may be issued. Only the charges affected
by the changed circumstance may be revised.
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