Even the most well-intentioned ideas will fail if they're poorly executed. The Good Faith Estimate (GFE) is a perfect example. Created to provide consumers with some solid numbers in the mortgage process, it often results in confusion instead of clarity.

Mortgages are complicated transactions. With so many nuances, rules, and figures involved in a home loan, confusion is bound to arise during the process. To alleviate uncertainty-and to keep a mortgage lender honest-the Good Faith Estimate was created.

Federal law states that a consumer must receive a GFE within three days of completing a mortgage application. This document contains all the key elements of the mortgage, including rate, loan type, and costs. Unfortunately, these are preliminary numbers; they often change during the course of the loan process. And because there's no standard GFE form, borrowers often have problems locating vital information.

Finding key figures

While most lenders tend to maintain a common look to their Good Faith Estimate, there's no federally regulated format that requires them to. As a result, it's easy to lose track of key figures. The following key numbers will be on the GFE; it just may take you some careful analysis to locate them.

The interest rate for the mortgage is printed on the GFE, and the type of loan that you've selected (fixed-rate vs. adjustable-rate loan) could be checked in a "Loan Program" box. Other numbers you'll want to find are "Total Estimated Funds Needed to Close," which tells you how much money you'll need to bring to the closing table, and your "Total Loan Amount," which is the size of your mortgage.

Check also for costs on the GFE. You should find a line that reads "Loan Origination Fees." This will cover all the processing expenses incurred by the lender. There will also be a line indicating any points that you'll be paying, the payment to your mortgage broker, and any underwriting costs. Be on the lookout for the appraisal and title fees, and double-check that these are accurate.

Good Faith as fiction

The numbers on the Good Faith Estimate are only an estimate. Nothing is guaranteed. A number of variables could change the structure of the proposed figures. If you don't lock in your rate, for example, it could significantly increase (or decrease). If the borrower finds that you have a low credit score, it will also impact your loan rate.

While it's just an estimate, the GFE should still serve as a benchmark throughout the mortgage loan process. As you progress, carefully keep track of all the costs that the loan officer presents to you. The document is designed to keep your loan officer from springing any last minute surprises on you at the closing. Numbers may vary slightly, but not by much. If they do, you have reason to be extra cautious, and your lender will have a little extra explaining to do.

Published on August 12, 2008