If you have a home equity loan or variable mortgage, pay attention to the Fed.
What is GFE?
GFE is an acronym for good faith estimate. Within three days of applying for a mortgage or reverse mortgage, the loan company is required to give you a GFE, as mandated by both federal and state policies. The GFE approximates the fees you will be expected to pay if you stay with that lender and go on to close on the mortgage.
Although the lender’s GFE is giving you an idea upfront of what your fees will be, it does not guarantee that you will be approved for the loan. You still have to wait until the approval process is completed.
The amount estimated to be due at the time of closing varies by lender, making a GFE a good tool as you shop for a mortgage lender. Once you receive a GFE, you can see at a glance how much you will need to take with you to closing.
A GFE should provide the following information:
- Basic information about the lender.
- How long you have to lock in the interest rate.
- How long until the interest rate expires.
- How long you have to close on the loan.
- When the GFE is set to expire.
- Principal loan amount.
- Number of years you have to pay.
- Your initial monthly payment, including the principal and interest.
- The maximum possible first charge on a variable-rate mortgage.
- Any penalties that will be incurred in the event of loan prepayment.
- If the mortgage has a balloon payment, when that payment is due.
- Origination fees, including anything charged for taking out the loan.
- Points, the additional fees sometimes paid for a particular locked-in interest rate.
- Fees for services by the lender, including appraisals, pulling your credit reports, title insurance, recording charges, local and state transfer tax, escrow deposit for property tax and insurance, any insurance required by the lender (such as flood or earthquake), and prorated interest from closing date until the first payment is due.
Because the true value of a GFE is to allow you to compare one lender with another, it helps to have a quick and easy way to break it down. No matter which lender gives you a GFE, you will see the same three-page GFE that all lenders use. While everything on the GFE is important, there are at least six things you should check before you decide to proceed:
The first box, called “Your initial loan amount is.” It should be only for the amount you expect to borrow. If it is for more, it is likely the lender has rolled other expenses, like closing costs, into the amount.
- Interest rate. It should be the amount the lender quoted. This is also a good place to compare one interest rate with another.
- Monthly payment. This should be the amount promised when you spoke with the lender. The amount shown on your GFE covers only principal, interest, and, if you are putting less than 20 percent down, the monthly mortgage insurance premium. Your actual monthly payment will include property taxes and homeowners insurance.
- The box that states whether you are getting a fixed-rate or adjustable-rate mortgage. Make sure it is in line with what you asked for.
- Settlement charges. These are the fees a lender is going to charge for processing your mortgage, and are the costs most likely to vary by lender.
- Discount points. If you did not agree to pay points to lower the interest rate, there should not be any discount points listed.