Good Faith Estimates And Loan Estimate Forms: What They Are And How They Work

A Good Faith Estimate was a form required by lenders thanks to the Real Estate Settlement Procedures Act. Within the form, the borrower could learn more about the specific terms of the mortgage. In addition to the mortgage’s details, the Good Faith Estimate provided a comprehensive itemization of any fees the borrower was responsible for at the time of closing. 

The breakdown of estimated fees was a helpful tool for borrowers. The goal of the Good Faith Estimate was to help borrowers compare the fees across several mortgage lenders with ease. As the borrower, you’d know what you were getting yourself into before signing off on the mortgage. 

However, the government discovered that the Good Faith Estimate was not as helpful for the borrower as it seemed. With too much lender-chosen jargon involved in a Good Faith Estimate, the information was sometimes confusing to the borrowers. With that, it was difficult to pull out the details that would allow the borrower to compare loans easily.

Once it was decided that consumers needed a clearer picture of their loan options, the federal government decided to change the process in 2015. With the passing of the Truth in Lending Act, Loan Estimate Forms replaced the Good Faith Estimates. 

The Loan Estimate Form’s goal was to break down the details of a loan offer to a more understandable level. With the basics of the loan spelled out clearly, you can make a more informed decision. Lenders are required to provide a three-page loan estimate form within 3 business days of submitting your application. The Loan Estimate Form doesn’t approve your loan, but it’ll map out the estimated loan terms, closing costs and projected monthly payments. 

All lenders are required to use the same Loan Estimate Form. That means the estimates are easier to compare when you have multiple loan offers. With standardized wording on Loan Estimate Forms, you’ll have a better idea of what’s happening and a better understanding of the loan costs than you might with the outdated Good Faith Estimate documents.

When you’re in the midst of the loan application process, you should expect to deal with a lot of paperwork. Once you’ve submitted your details to the lender, you should receive the form back quickly. 

In fact, when you apply for a mortgage, the lender is required to provide you with a Loan Estimate within 3 business days. Typically, this happens after you’ve decided on a home and made an offer.

Once you have several Loan Estimates, you can start to compare your options. You’ll find that the forms are very easy to compare due to the standard formatting required by law. With all the details at your fingertips, you’ll find it easier to make the best decision. 

Both the borrower and the lender benefit from the Loan Estimate Form. As the borrower, you’ll be able to compare loan costs easily. As for the lenders, they’ll be able to present a clear picture of their mortgage product. If they offer competitive loans, the lender will stand out from the crowd.

A Good Faith Estimate included all of the costs required to finalize your mortgage. The estimate often included some of the fees and costs, such as those to pull your credit report, loan origination fees, appraisal fees, title costs and more. 

When the Good Faith Estimate was replaced with the Loan Estimate Form, the form’s components were standardized and updated. The Loan Estimate Form clearly breaks down the different components of the loan. You’ll see the loan amount, the interest rate and an estimated monthly payment. Beyond that, you’ll learn about any prepayment penalties and closing costs.

Not only will you learn about the estimated costs but also what services you can shop around for. A few examples might include the survey fee, the title search and the pest inspection fee. With the ability to shop around for a few services, you can lower your overall costs below the estimate. 

One important note is to determine how long the interest rate will be locked in. On the first page of your Loan Estimate, you’ll find out whether the interest rate is locked in and how long you have to move forward. Typically, rate locks are available for 30, 45 or 60 days, but the lender can choose to leave your rate unlocked which means it could change at any time.

Although an estimate will provide an idea of what you should bring to closing, the numbers can change slightly. The home buying process has many moving parts, so it’s completely normal for the final closing costs to vary from the estimate. 

As the closing date approaches, you should confer with your lender to determine the final amount due at closing. You might find that it has increased or decreased.

Although Good Faith Estimates are no longer used in real estate transactions, you can still obtain a Loan Estimate. With more details clearly available on the Loan Estimate, you won’t be disappointed by the change. 

If you’re interested in getting a Loan Estimate, then contact your lender. If you’d like to work with Rocket Mortgage^®, start by creating an account. The helpful site will walk you through the process of filling out an application. Once the application is completed, you’ll receive a Loan Estimate soon.

With a Loan Estimate Form, you can better understand the details of your loan offer. Plus, you can compare these details across multiple lenders. When you find the right offer, you’ll be ready to move forward confidently. 

As you navigate the home buying process, take advantage of the free resources on Rocket Money.