What is a Good Faith Estimate?
A good faith estimate is a written estimate of the fees due at closing for a mortgage.
How Does a Good Faith Estimate Work?
The Real Estate Settlement Procedures Act (RESPA) requires a lender has to provide a written good faith estimate to a borrower within three days of the borrower applying for a mortgage.
The good faith estimate details the cost of the inspection, title insurance, attorney fees, escrow requirements, documentation fees, loan origination fees and other items associated with the cost of settling the loan and performing the transaction. The estimate itself is written on a standardized form to ease comparability and clarify disclosure.
The Department of Housing and Urban Development provides a sample good faith estimate form here.
Why Does a Good Faith Estimate Matter?
Closing costs are expensive -- almost 10% of the loan amount in some cases -- and different lenders charge different fees. A good faith estimate allows people to shop around, prevents borrowers from being surprised and prohibits lenders from arbitrarily changing their fees during the transaction.
