Definition
A Good Faith Estimate (GFE) was a document provided by mortgage lenders outlining the estimated costs and fees associated with obtaining a home loan. It included details such as loan terms, interest rates, closing costs, and prepaid expenses to help borrowers compare loan offers. The GFE was replaced in 2015 by the Loan Estimate under the TILA-RESPA Integrated Disclosure (TRID) rule.
Explanation
Before 2015, lenders were required to provide a GFE within three business days after a borrower applied for a mortgage. The estimate helped borrowers:
- Understand total loan costs before committing to a lender.
- Compare multiple loan offers.
- Avoid unexpected fees at closing.
Under the Dodd-Frank Act, the Loan Estimate (LE) replaced the GFE and the Truth in Lending Disclosure, making mortgage terms easier to understand and compare. The Loan Estimate provides:
- Loan terms – Interest rate, loan amount, and monthly payments.
- Estimated closing costs – Fees for lenders, title companies, and third-party services.
- Cash-to-close amount – Total amount the borrower needs at closing.
Although GFEs are no longer issued, some borrowers and industry professionals still refer to Loan Estimates as GFEs due to their similar purpose.
Example
Before 2015, a homebuyer applying for a $350,000 mortgage would receive a Good Faith Estimate detailing:
- Origination Fees – $2,500
- Appraisal Costs – $450
- Title Fees – $1,200
- Total Estimated Closing Costs – $9,000
Today, the buyer receives a Loan Estimate instead, which serves the same purpose but with clearer breakdowns of potential costs.