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What Is A Good Faith Estimate For A Home Mortgage?

By Eric Goodwill

The government requires mortgage lenders to provide prospective borrowers with a good faith estimate. A good faith estimate outlines all costs that will be incurred as a result of the mortgage. Those who plan to purchase a home should not agree to a loan unless they see the good faith estimate for a home mortgage first.

Benefits of a good faith estimate for a home mortgage

A good estimate for a home mortgage is a tool for comparing what lenders have to offer. Because the purpose of the good faith estimate is to provide information about the various fees charged by a lender, a wise borrower can compare the estimate with what other lenders are offering. This can help savvy borrowers negotiate the best mortgage deal.

What is included in a good faith estimate for a home mortgage?

In a reviewing the good faith estimate for a home mortgage, expect to see the amount of interest to be paid on the loan and any discount points to be paid. Discount points can help reduce the interest and the monthly payments. Discount points are paid at closing. Examples of fees included in the good faith estimate for a home mortgage are appraisal fees, mortgage broker fees, title fees, fees to lock in interest rates and insurance costs.

Caution–good faith estimates can change

While the government requires lenders to provide good faith estimates, there is no law against these estimates changing. A lender should also provide a Truth-in-Lending statement that states what the APR or annual percentage rate will be. However, a borrower should not be surprised to learn that the fees and rates could increase substantially by closing. It is a good idea to ask a lender to lock-in the fees and interest rates to prevent an increase in these amounts before closing.

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4. How Should Points Affect The Way I Shop For A Mortgage?
5. Is There More About Mortgage Rates Than Meets The Eye?