Good Faith Estimate (GFE): What it is, How it Works

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Doretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. She is an adjunct professor at Connecticut State Colleges & Universities, Maryville University, and Indiana Wesleyan University. She is a Real Estate Investor and principal at Bruised Reed Housing Real Estate Trust, and a State of Connecticut Home Improvement License holder.

Suzanne is a content marketer, writer, and fact-checker. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies for financial brands.

What Is a Good Faith Estimate (GFE)?

A good faith estimate (GFE) is a document that outlines the estimated costs and terms of a reverse mortgage loan offer, enabling borrowers to comparison shop among different lenders and choose the deal that best fits their needs.

Under the Real Estate Settlement Procedures Act (RESPA), lenders were required to provide consumers with GFEs within three days of a regular mortgage application. Then, in October 2015, GFEs were only made applicable to people seeking reverse mortgages, with loan estimate forms being introduced for other types of home loans.

Key Takeaways

• A good faith estimate (GFE) details a fair assessment of the expected fees, costs, and terms associated with a potential mortgage.
• GFEs now only apply to reverse mortgages, with similar loan estimate forms being introduced for other home loans.
• Borrowers must be provided with GFEs within three business days of their application.
• It's possible to shop around and acquire multiple estimates before choosing a loan or a lender.
• The costs noted on the form are only estimates and may not always prove to be accurate.

How a Good Faith Estimate (GFE) Works

A GFE makes it possible to compare offers from various lenders and brokers. Once the document is received, borrowers can examine the breakdowns and contract terms and then indicate if they wish to proceed with the mortgage loan from that particular financial institution.

The form is written in clear language to help consumers better understand the terms of the mortgage for which they are applying and borrowers may shop around and acquire multiple estimates before choosing a loan or a lender.

Since October 2015, GFEs now only apply to reverse mortgages: loans that enable seniors aged 62 and older to convert their home equity into lump-sum amounts, fixed payments, or lines of credit (LOCs).

The bank or financial institution must provide the homeowner seeking a reverse mortgage with a GFE within three business days of receiving their application. This form includes a breakdown of all the costs associated with the loan, such as taxes, title charges, closing costs, and administrative fees, as well as any other terms and conditions of the loan, including policies regarding payback.

Consumers should beware of unscrupulous lenders, who may add their fees or charge excessive fees for administrative items such as wire transfers.

The official standardized estimate forms provide information about the approximated costs of taxes and insurance and how the interest rate and payments may change in the future. Borrowers may be charged a credit report fee before receiving a GFE but cannot be charged any additional fees to acquire the document.

Limitations of a Good Faith Estimate (GFE)

The costs noted on the form are only estimates and merely provide a rough idea of how much borrowers may be expected to spend in order to get the loan and what's expected of them before and after the loan comes due. The actual costs might ultimately be higher or lower when everything is finalized.

There are legitimate reasons for discrepancies between the GFE and the actual closing costs. The lender may not know all the costs of closing services provided by third parties, which may be considered the hidden costs of owning a home.

Good Faith Estimates (GFE) vs. Loan Estimate Forms

As noted above, GFEs now only apply to reverse mortgages. They were replaced with loan estimate forms after October 2015 for anyone seeking other types of mortgages.

Loan estimates, like GFEs, are an industry standard. They must be provided to mortgage applicants within three business days of their applications and provide a breakdown of costs, terms, and conditions. And just like the GFE, the document allows borrowers to compare costs between lenders.

Special Considerations

Borrowers applying for a home equity line of credit (HELOC), a manufactured housing loan that is not secured by real estate, or a loan through certain types of homebuyer assistance programs are not provided with GFEs or loan estimates. Instead, they receive truth-in-lending disclosures.

1. Consumer Financial Protection Bureau. "What Is a Good Faith Estimate (GFE)?" Accessed Nov. 15, 2021.
2. Consumer Financial Protection Bureau. "§ 1024.7 Good Faith Estimate." Accessed Nov. 15, 2021.

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Adjustment frequency refers to the rate at which an adjustable-rate mortgage rate (ARM) is adjusted once the initial period has expired.

The primary mortgage market is the market where borrowers can obtain a mortgage loan from a primary lender such as a bank or community bank.

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A silent second mortgage is a second mortgage placed on an asset for down payment funds that are not disclosed to the original mortgage lender.

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