What a Good Faith Estimate Means to Your Mortgage

If you’re buying a house, you’re entitled to a “good faith estimate” when applying for a mortgage. However, sometimes these itemized rundowns of the estimated costs of a home loan aren’t made in good faith at all. They can be misleading, and they can bait a homeowner into paying thousands more than they had anticipated. In order to protect yourself from predatory lending, here a few things you need to know about good faith estimates:

  • They don’t tell you exactly what you’ll be spending. The good faith estimate forms that lenders use were revamped about a year ago, but, according to industry experts, they still don’t disclose exactly what borrowers will be paying for their loans. For example, the form doesn’t include down payments in its estimate, nor does it mention seller-paid costs like transfer taxes.
  • They might not be official estimates at all. Providing an official good faith estimate locks lenders into agreeing to the loan terms described on the form. In order to bypass this obligation, some unscrupulous financers provide buyers and homeowners with “work sheets” instead. These documents look a lot like good faith estimates, but they aren’t legally binding. They also allow the lender to change their terms at closing. As a responsible buyer, you should always confirm that every good faith estimate is delivered on the official, legally mandated form.
  • Lenders never know the exact cost of a loan. Some of the expenses associated with buying a house aren’t decided until closing, so there’s no way your lender will be able to tell you exactly how much your loan will cost. This is typically not a problem for many buyers, but there are some lenders who will use that little cushion of uncertainty to jack up their rates behind your back.

A good faith estimate can be a useful tool when buying a house, but only if you take it with a grain of salt. Instead of relying on these estimates to tell you the total cost of your home, use them as a way to compare the loan terms of different lenders in order to decide which mortgage is right for you.