A Good Faith Estimate is one of the most important loan documents you will receive in the entire loan process. Unfortunately, most borrowers either never look at it or can’t understand it, and simply throw it away.

More than a few times early in my career, I ran into problems where, the day before closing, a borrower was freaking out about the amount of money they had to bring to closing, or the interest rate of the loan, or some other term they didn’t fully understand. They didn’t understand why the number was higher than what we had discussed at the beginning of the process. And I, a foolish 20-something, would ask why they didn’t look at the GFE. They, in turn, would ask what that meant. This conversation would last for a few minutes before I finally got them to go through the 10 pound stack of papers they had received over the last two weeks until they found the paper. We would go through it, and it would clear everything up.

Now I review Good Faith Estimates up front with clients once I have one to send. What I go over with the client on this form is what the loan amount is, what the closing costs are, how much will need to be placed in escrow, and the total estimated settlement charges. This all impacts the cash needed at closing, and as such is extremely important to borrowers. Once that is all understood, it becomes important to look at the loan summary. This shows what the interest rate is, what the length of the loan is, how much the mortgage will cost monthly, and how much you will pay over the life of the loan. Finally, we go over the date when the GFE expires (and thus the rate lock expires).

With all of this information covered, it becomes much easier for a borrower to prepare for closing and for the next 15 to 30 years of their lives with this new mortgage.

If you are looking into buying a new house and would like to get an idea of what rates and terms might apply to you, please contact me so that I can discuss your situation with you. If you have anything to add about how to read a Good Faith Estimate, leave a comment.