THE MORTGAGE PROCESS HAS NEVER BEEN MORE TRANSPARENT, THANKS TO THE GFE

What is a GFE?

A Good Faith Estimate referred to as a GFE must be provided by a mortgage lender or broker in the US to a customer, as required by the Real Estate Settlement Procedures ACT (RESPA). The estimate must include an itemized list of fees and costs associated with your loan and must be provided within three business days of applying for a loan. The good faith estimate is only an estimate and the final closing costs may differ.

Transparent Mortgage Process

The new RESPA - Real Estate Settlement Procedures Act went into full effect on January 1, 2010. The Act standardizes the Good Faith Estimate that all lenders must provide to borrowers. The 3-page form is written in plain English and clearly discloses to borrowers the actual costs of their mortgages, including interest rates, fees and penalties. It also explains which fees are subject to change, and which are not. In addition, closing agents must provide borrowers with a new HUD-1 settlement statement that compares borrowers' final and estimated closing costs. The new standardized forms are intended to help borrowers shop around for the best mortgage deals on an apples-to-apples basis, whether they are refinancing or buying a new home.

The new Good Faith Estimate requires lenders to disclose features that could drive up costs down the road -- for example, if your interest rate will rise and, if so, by how much. Lenders must also now disclose whether the loan includes balloon payments, yield spread premiums, or imposes penalties for paying the loan off early.

The forms also make clear which charges cannot increase at settlement, and which can. Charges that cannot increase are generally those controlled by the lender, including the origination charge and processing fees. Fees for third-party services, such as appraisals and title insurance, can increase no more than 10% from the estimate, as long as the borrowers use lender-approved providers. The limit doesn't apply if borrowers use their own third-party providers.

Note: Closing costs can account for between 3 and 5 percent of a sale price.