Mortgage Shopping: How to Compare Good Faith Estimates

When you’re in the process of buying a property and financing your purchase, you probably would like to make sure your lender is giving you a fair deal. In order to make that determination, you need to get at least two bids from different lenders. They should give you these bids, which show the total costs and the interest rate you are eligible for, on the federally required Good Faith Estimate (GFE) form.

Theoretically, you can use the different lenders’ good faith estimates to compare the cost of financing between those lenders. This, however, is easier said than done because the costs that are most relevant to determining whether you’re getting the best deal — loan origination charges, credits and points — are mixed among other costs that are not determined by the lender. The combined costs are noted on page 2 of the GFE under “Estimated Settlement Charges.”

So, how do you isolate the relevant costs that you need to review so you can make a better decision on the lower cost provider for mortgage financing?

In order to dissect and isolate the costs that the lender is charging you, have your lender add up the lender costs in lines 1, 2 and 3, which they would estimate on page 2 of the GFE, and provide you the loan interest rate for which you are qualified (and loan lock period).

So if Lender A estimates the lender costs at $3,500 for a 45-day loan lock at 3.5 percent, you can go to Lender B and ask for an estimate of costs on a 45-day loan lock at 3.5 percent for your borrowing and credit profile. Then you can compare the lender cost estimates and determine which offer is the best deal.

Some other costs on the GFE — such as title and homeowners insurance costs — are also important and relevant to your transaction, but they don’t need to be reviewed when selecting the best financing deal because those costs are not paid to the lender.