What is a Good Faith Estimate?
Disclaimer: This article is for educational purposes only and does not constitute legal, tax, or financial advice. Federal and state regulations change frequently. Consult a qualified attorney, CPA, or licensed professional before making decisions based on regulatory requirements discussed here.
A Good Faith Estimate (GFE) was a standardized form that mortgage lenders were required to provide to loan applicants within three business days of receiving a loan application. The GFE itemized estimated closing costs, loan terms, and monthly payment projections, giving borrowers an early look at the financial details of their mortgage before committing to the loan. The GFE was required under the Real Estate Settlement Procedures Act (RESPA) from 2010 until October 2015, when it was replaced by the Loan Estimate form under the TILA-RESPA Integrated Disclosure (TRID) rule.
While the GFE is no longer in use, its successor (the Loan Estimate) serves the same purpose and understanding the concept remains relevant for real estate investors, particularly those who use financing for investment property acquisitions.
What the GFE contained
The GFE provided estimates for: loan origination charges, adjusted origination charges (including discount points), interest rate and whether it was locked, monthly payment amount, estimated closing costs itemized by category, total estimated settlement charges, and the cash needed to close. The form was designed to be compared across lenders, enabling borrowers to shop for the best combination of rate and fees.
The Loan Estimate replacement
The Loan Estimate form that replaced the GFE provides similar information in a clearer, consumer-friendly format. It must be provided within three business days of loan application and includes: loan terms, projected payments over time, closing cost details organized into categories, a comparison section showing total costs across the loan's first five years, and contact information for the lender and loan officer.
The key improvement over the GFE is tolerance limits. Certain fees on the Loan Estimate cannot increase at all before closing (lender fees, services the lender selects). Other fees can increase up to 10% in aggregate (third-party services the borrower cannot shop for). And some fees have no limit (services the borrower can shop for, prepaid interest, insurance). These tolerance rules protect borrowers from bait-and-switch tactics where low estimates are revised upward at closing.
Why investors should care
For investors financing acquisitions, comparing Loan Estimates across lenders is one of the most effective ways to reduce transaction costs. Origination fees, discount points, and third-party fees can vary significantly between lenders. On a $300,000 investment property loan, the difference between a lender charging 1.5 points and one charging 0.5 points is $3,000 -- money that directly reduces your return.
When using hard money or private money lenders, you may not receive a formal Loan Estimate (these lenders are often not subject to TRID requirements). In that case, request a detailed fee breakdown and compare it to competing offers. The same shopping discipline applies.
Comparing estimates effectively
Focus on total cost of the loan, not just the interest rate. A loan with a lower rate but higher origination fees may cost more over a short holding period (typical for flips) than a higher-rate loan with lower upfront costs. Calculate the total cost for your specific holding period: (monthly payment x months) + closing costs. This gives you the true cost of each financing option for your investment timeline.