What is a "good faith estimate" (GFE)?

A "good faith estimate" (GFE) is an estimate of closing costs provided to borrowers, which plays a critical role in the mortgage lending process. This document outlines the anticipated costs associated with closing a mortgage loan, allowing borrowers to understand the potential financial obligations involved before the final approval and closing of the loan. It typically includes various fees such as loan origination fees, title insurance, and other related closing expenses, which help borrowers prepare their finances and compare offers from different lenders.

The importance of the GFE lies in its function as a tool for transparency, ensuring that borrowers are not caught off guard by unexpected costs at closing. By providing an estimate upfront, the GFE supports informed decision-making and encourages competition among lenders to provide the best possible terms.