What is the purpose of a Good Faith Estimate (GFE)?

A Good Faith Estimate (GFE) is intended to provide borrowers with an estimate of the closing costs they will incur when taking out a mortgage loan. It offers a detailed overview of the expected costs associated with the loan process, including lender fees, third-party fees, and other expenses that can arise during the transaction. This transparency helps borrowers better understand their financial obligations and make informed decisions about whether to proceed with a loan.

The GFE is particularly important because it allows borrowers to compare the costs from different lenders effectively. By presenting a clear breakdown of all estimated costs, the GFE ensures that borrowers are not caught off guard by unexpected charges at closing.

This information is distinct from a mortgage pre-approval, which evaluates a borrower's creditworthiness and ability to repay a loan. Additionally, it is separate from assessing property values for tax purposes or calculating total interest payable, as these activities serve different functions in the real estate and mortgage process. Therefore, recognizing the role of the GFE is crucial for anyone entering into a mortgage agreement, as it plays a vital role in financial planning and transparency in the home buying process.