Loan Estimate Replaces The Good Faith Estimate

This guide covers how the loan estimate replaces the good faith estimate. Loan Estimate Replaces The Good Faith Estimate effective October 3, 2015. The main reason Loan Estimate Replaces The Good Faith Estimate was because the Consumer Protection Financial Bureau, referred and known as the CFPB, thought that the GFE was very confusing. CFPB wanted to simplify it with a simpler form called the Loan Estimate. The Loan Estimate is also referred to as the LE.

The mortgage business is an extremely regulated business. All mortgage lenders need to abide by both federal and state mortgage guidelines. One of the most important rule when it comes to mortgage loan applications and mortgage process is that federal laws require that all mortgage companies, including banks and credit unions, need to disclose all costs and fees. In this article, we will discuss and cover how the Loan Estimate Replaces The Good Faith Estimate.

The New Loan Estimate Versus The Old GFE

Cost and fees, including third party charges, needs to be disclosed to borrowers with 3 days of triggering a loan application. The purpose and goal of why this law was implemented were to help borrowers to compare mortgage rates, costs, and fees among lenders.  The second purpose for this disclosure requirement is to make sure borrowers do not get a surprise on costs and fees. This federal disclosure is called the Good Faith Estimate, also referred to as GFE

Effective October 3, 2015, The Loan Estimate Replaces The Good Faith Estimate. The Loan Estimate will be referred to as the LE. The Good Faith Estimate, GFE, is a standard form created and approved by the federal government where all lenders need to abide by. However, it will only be good until the Loan Estimate Replaces The Good Faith Estimate later this year.

Page 1 of The GFE

The Good Faith Estimate is a mortgage document created and implemented by the federal government. 

• The Good Faith Estimate template was created and published by the United States Department of Housing and Urban Development, HUD
• All banks, credit unions, mortgage bankers, mortgage brokers, and lenders need to use the standardized form of the Good Faith Estimate when originating home loans
• The Good Faith Estimate consists of 3 pages
• The Good Faith Estimate is valid for a period of 10 days from the date of issue

Items included in the Good Faith Estimate include the following:

• the summary of the mortgage loan consisting of the original mortgage loan amount
• the terms of mortgage loans
• amount of initial monthly principal and interest payments

The escrow information is also included in the Good Faith Estimate:

• Includes the pro-rated home annual property tax and the homeowner insurance fees

The estimated loan costs which include the following:

• origination fees
• processing fees
• underwriting fees
• title fees
• all applicable third party costs are included as well

Importance of Dates on The GFE

The Good Faith Estimate needs to be disclosed timely and date are a priority when it comes to the GFE. 

• The GFE is not good forever
• The expiration date is listed on page one of the Good Faith Estimate
• The first date on the GFE is the date when the interest rate quoted expires
• For the mortgage company to honor the terms of the GFE, borrowers need to make a commitment with the lender before the expiration of the first date

The second date of the Good Faith Estimate is the date where the third party costs and fees are guaranteed.

Third-Party Charges

The costs and fees of third party settlement charges are normally overly disclosed because if it is under disclosed, the mortgage lender is liable for third party charges even though the mortgage lender has nothing to do with third party charges.

• Any charges that the mortgage loan borrower pays over 10% of the third party fees disclosed on the GFE, the mortgage lender is responsible for
• When mortgage lenders are not sure of the estimate of third party charges, they will list a very high amount
• The Good Faith Estimate will also list the number of the day of your mortgage rate lock
• The mortgage company is not responsible to honor the rate quoted on the GFE if the mortgage loan does not close within a certain time period

The last box of the GFE is the number of days prior to the date of closing the mortgage rate needs to be locked.

Escrow Account Information

The second section of the GFE will have a summary of the mortgage loan and escrow account information. 

• It will note whether the loan is a fixed-rate mortgage loan or an adjustable-rate mortgage, ARM
• The initial original loan amount is listed as well as the term of the loan, mortgage rate, and initial monthly principal and interest payment
• It will also say whether or not mortgage rate can rise during the course of your loan
• Whether original mortgage balance will rise, or whether the loan has a pre-payment penalty fee
• There are no pre-penalty fees by law on residential mortgage loans
• However, the verbiage is still listed
• The escrow account line item will explain how property taxes and homeowners insurance will be disbursed

The Good Faith Estimate will list whether or not you are escrowing for your property taxes and homeowners’ insurance.

Settlement Charges

The bottom of page one of the Good Faith Estimate will summarize the charges and fees the borrower might incur in the origination of the mortgage loan.

• The fees and costs are itemized in two parts
• The first part will list all costs and fees charged by the mortgage company

The second part will consist of the fees that will be charged by third-party vendors such as the following:

• title companies
• attorneys
• inspection companies
• government charges
• other third party vendors

Remember that these costs and fees are not actual charges and fees borrowers need to come up with but merely overly disclosed estimates.

• If the fees and charges do not apply to the home loan borrower, then they are not obligated

Page 2 of The Good Faith Estimate

The adjusted origination charges will be on the second page of the Good Faith Estimate which consists of the following:

• all lender fees and costs
• processing fees
• credit-reporting fees
• discount point fees
• underwriting fees
• other fees and costs from the mortgage company

Below the adjusted origination charges on the second page of the Good Faith Estimate, there will be a section for other settlement charges for services provided by third-party companies that has a direct or indirect association with the origination and funding mortgage loan.

Page 3 of The Good Faith Estimate

The third page of the Good Faith Estimate was created to educate the consumer on shopping for a mortgage loan:

• Also information on comparing mortgage loans
• The Good Faith Estimate is controversial
• It was often difficult to understand for many consumers
• Unfortunately, it is a federal law and must be disclosed properly to borrowers

The Loan Estimate Replaces the Good Faith Estimate

The Good Faith Estimate has been replaced with the Loan Estimate which was created and implemented by the Consumer Financial Protection Bureau, CFPB, effective October 3rd, 2015. We explained the Good Faith Estimate in great detail. Whatever was in the GFE was simplified and converted into the one page Loan Estimate. The CFPB made this change in replacing the GFE to the new Loan Estimate to make it easier to comprehend for consumers.

FAQ on The Loan Estimate Replaces The Good Faith Estimate

People do not understand GFE and LEs, so here are some of your burning questions, which we will address along with putting a better understanding of Good Faith Estimate and its successor Loan Estimates:

The GFE One Used to Dominate, But the New Age Revolved Around Loan Estimates, So Why?

Work of creditors seeking balance reorientation in bringing change towards clearer descriptions and simplicity of mortgages and their control.

• In the latest changes, the reform that directly affected GFE and made Fannie Mae throw it out was TRID, which literally integrated all of the services together. This meant GSEsGSE would now offer the TILA for ease of use instead.
• GFE underwent drastic changes but fully evolved to its current state as the LE in 2015, offering borrowers ease while being transparent in making terms flexible.

To further aid the borrowers, TILA implemented new laws that directed creditors to systematically focus on the following four key aspects regarding communication and representation of loans.

Loan Estimate Replaces the Good Faith Estimate: Closing Cost

This is a summary of the estimated closing cost of a loan, including the lender’s title insurance and other costs.

Comparisons: These items assist the borrower in deciding which of several loans to take.

How Does the Loan Estimate Assist Borrowers?

The Loan Estimate assists the borrowers in:

• A single page provides a concise summary of the loan terms and costs.
• Quickly look at several loan offers and pick what seems best.
• Simply, it was knowing the steps necessary to complete the mortgage and its associated costs.

Is The Loan Estimate an Enforceable Document?

A Loan Estimate is not enforceable; it must be understood. It is an estimate and thus indicates the order of expected costs and the terms for the loan; however, the cost may change. Certain rules exist that limit a lender’s ability to stray from the estimate.

When Would a Borrower Expect to Receive a Loan Estimate?

Loan Estimates should be issued exclusively within three business days following the signing of the EUA. This schedule is generally useful because it protects the borrower.

After Receiving a Loan Estimate, Can You Expect Your Closing Costs to Stay the Same?

Some costs can change, but here are some instructions on when change may occur:

• Some charges, such as the lender’s, should not exceed a closing cost estimate by 10% or more.
• The remaining expenses (including taxes and insurance) are assessed according to the actual costs. Still, the lenders are required to notify the borrowers of important changes.

Where Can I Get Help if I Put Up With Differences That Exist in My Loan Estimate?

If there are discrepancies and questions, the lender that issued your loan estimate can provide an update. During the procedure, try to clear out every concern immediately.

How Do I Use the Loan Estimate to Evaluate Potential Mortgage Providers?

To figure out which lenders have better rates:

• Check the interest rates and what loans they consist of.
• Look at the general costs of settling and charges, if any.
• Pay attention to the overall monthly outgo including the principal, interest, taxes, and insurance.
• Think about how much the loan will cost in total throughout its duration.

The Loan Estimate form is one of the outstanding forms that explains and assists customers in selecting and comparing their mortgage applications. It helps clarify the loan process since it explains the loan terms and the related closing costs, enabling the client to make a well-informed decision. Remember to read your Loan Estimate to scrutinize and point out any issues and questions so that you know every aspect of the terms of your mortgage.

This guide on the loan estimate replaces the good faith estimate was upadated on Novemeber 28th, 2024.