How to Read a Good Faith Estimate

The Good Faith Estimate (GFE) is the most important document to analyze when shopping for your home loan. In this post, we will decipher the GFE so that you can make sure you understand your mortgage.

The first section of the GFE gives the name and contact information for your mortgage loan originator. Your mortgage loan originator is the person who is licensed to take your loan application and discuss interest rate and fees. To check on the license details of any mortgage loan originator, visit www.nmlsconsumeraccess.org.

The date of the GFE should be within three days of the loan application date, and the loan application date is defined by the date that the mortgage loan originator receives the following six pieces of information:

• 1.Your name
• 2.Your social security number
• 3.Your date of birth
• 4.Your estimated income
• 5.The subject property address
• 6.The subject property estimated value

NOTE: If you did not receive a Good Faith Estimate within three days of the loan application date, then the mortgage loan originator has committed violation.

The “Important dates” section of the GFE tells you whether your rate is locked and the length of time that some of the fees must be guaranteed. Important date #1 tells you how long your interest rate is available through (essentially, this tells you whether your rate is locked or not), so your rate is NOT locked if this date is the current date (this is called a “floating” rate). Be careful, as many unethical mortgage loan originators will place an unrealistic interest rate in your GFE, leave it in “floating” status, and then lock in a higher rate after you’ve invested time and money into the transaction. Important date #2 gives a date through which the charges listed in section B of the GFE are guaranteed. Important date #3 tells you the number of days your interest rate is locked (will display “N/A” if the rate is floating). Important date #4 requires you to lock your interest rate at prior to closing by a specific number of days (typically 10). If your interest rate is already locked, Important date #4 will display “N/A”.

The “Summary of your loan” section summarizes the terms of your mortgage. This includes your loan amount (this includes all applicable FHA / VA / USDA up front mortgage insurance premiums and/or funding fees), your loan term, interest rate, and whether there are any risky features of the mortgage such as an adjustable rate, negative amortization, prepayment penalty, or balloon payment.

The “Escrow account information” tells you whether your payment will include taxes and insurance, in addition to the displayed principal + interest payment.

Box A displays “Your Adjusted Origination Charges”, which is broken down into origination charges and the credit or charge for the interest rate chosen (displayed on page 2 of the GFE). The origination charge may not ever increase. The credit or charge for the interest rate chosen may change once the interest rate is locked. Again, you must be careful as unethical mortgage loan originators will display unreasonably high credits paired up with a floating interest rate to make adjusted origination charges appear lower than they will be once the rate is locked.

Box B displays “Your Charges for All Other Settlement Services”, which is broken down into nine types of charges. The fees for these charges are guaranteed through Important date #2 with a 10% tolerance.

To make sure you are getting the best mortgage rate, collect several Good Faith Estimates. Locate competitive lenders by posting your loan scenario to www.ratebid.com. Unlike traditional mortgage shopping comparison websites, RateBid® keeps you anonymous while lenders manually quote according to a specific scenario. No personal information (so no sales calls). You decide who, when, and if you want to contact any given lender(s) after evaluating the numbers. This is all free for both borrowers and lenders and in my opinion, is the most efficient way to find the best mortgage rate for a given scenario.