3 tips for using the mortgage GFE

The training wheels have been taken off the GFE, or good faith estimate, of mortgage costs. Here is what you need to know about the new way of comparing mortgage fees.

The GFE is a document that lenders must provide to anyone who applies for a home loan. For years, the estimated mortgage closing costs on the GFE were nonbinding -- and, often, inaccurate.

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That changed in 2010. Now the GFE has to provide an accurate, bottom-line mortgage cost. The feds gave lenders slack the first four months of the year. Starting May 1, the feds expect each mortgage fee to be estimated accurately.

Following are three tips for using the new GFE:

Make sure what you get is really a GFE

Under the new rules, the lender has to provide a GFE within three days of receiving a loan application. Some lenders get around this requirement by handing out "work sheets" instead of GFEs.

The difference? Fee estimates on a work sheet don't have to be accurate.

By contrast, a GFE has accuracy requirements. A fee underestimate -- even if it's an honest error -- could cost a lender thousands of dollars.

Obviously, lenders nervous about underestimating fees might feel some temptation to overestimate fees instead.

"That was the original reaction that we saw in the marketplace," says Tim Dwyer, president of, a discount title insurance company in Stamford, Conn.

However, fewer lenders now overestimate fees "because they know they are losing loans in doing so," Dwyer says.

Use the GFE as a shopping tool

Making the GFE accurate was a means to an end. The regulators' real goal was to encourage consumers to comparison-shop. The final page of the three-page GFE has a "shopping cart" that encourages borrowers to "compare GFEs from different loan originators."

"Our advice was, is and always will be that consumers should shop, whether it's something significant, like title insurance, or something perhaps more minor, like pest inspectors," Dwyer says.

Tony Farwell -- CEO of, an online marketplace for real estate closing services -- agrees that it pays to shop.

"Most people think these service provider rates are very tightly grouped together, but in fact there's tremendous variance in what you can save on a closing without having to sacrifice the quality of the provider," says Farwell from his La Jolla, Calif., office.

Know what the GFE doesn't include

The GFE doesn't contain all the information you need.

"It omits cash to close, which is pretty fundamental if you're a borrower," Farwell says.

The old GFE estimated the size of the check that the borrower would bring to closing -- the "cash to close" to which Farwell refers. The new GFE doesn't. Some lenders provide this estimate in a supplemental work sheet. In this case, a work sheet is a good thing -- so long as it's offered in addition to, and not in place of, the GFE.

Robert Bernabe, former president of E-Trade Mortgage and author of the recently published book "Mind Your Own Mortgage," says the new GFE doesn't prevent lenders from inflating interest rates.

"If you're not shopping, it's very easy for (lenders) to do that to you," he says.

Bernabe's book teaches borrowers to review lenders' rate sheets. Getting a mortgage without looking at the rate sheet is like shopping for a car without going online and finding the true invoice price, he says.

Michael Moskowitz, president of New York-based mortgage lender Equity Now, says the most important thing is to spend time analyzing the GFE and comparing offers.

"It's their house, let them spend the next hour reading it," he says. "Let them put something else aside and force themselves to read it."


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