Within three days of receiving your loan application, your lender must give you a good faith estimate that clearly describes the terms and fees for mortgage you selected. As of January, 2010, HUD provided a standard three-page form to make it easier for borrowers to compare loans.
Basic Information
Among other things, the GFE indicates the amount of the loan, the interest rate, whether the loan is a fixed-rate or adjustable-rate mortgage, your estimated monthly payment, loan origination fees, points (interest pre-paid at the closing), and total estimated closing costs.
The mortgage rate listed on the estimate is subject to change unless you have made an arrangement with the lender to “lock in” a specific rate, but per HUD guidelines, the fees are guaranteed for ten days from the date the GFE was issued.
Check each of these items carefully when you receive your GFE and make sure the terms of the loan are what you and the lender originally agreed upon. For instance, if you and the lender discussed a fixed-rate mortgage, make sure the good faith estimate does not indicate a mortgage rate that varies from month to month. The estimate is a valuable tool to protect consumers against misunderstandings and even unethical loan practices like bait-and-switch (offering one type of mortgage but actually providing another that has less favorable terms for the borrower).
Comparison Charts
Another helpful feature of the good faith estimate is its two comparison charts.
The first is called the tradeoff table. This chart shows how the terms of your loan would be altered if you went with either lower or higher settlement charges, or closing costs. Typically lower settlement charges mean a decreased out-of-pocket expense but slightly higher interest rates and payments in the years to come. Higher settlement charges will cost you more at closing but will result in decreased payments over the life of the loan.
The final comparison chart is the “shopping cart” which compares the costs of similar loans from different lenders.
Paying close attention to the basic information and the comparison charts on an estimate can help you make sure you are getting the mortgage plan that makes the most sense for you financially.