The evolution of the good faith estimate

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

A good faith estimate (GFE) is a comparison of mortgage offers provided by lenders or brokers to a consumer. It was recently replaced by the loan estimate—a similar concept with a few small differences. 

What Is a Good Faith Estimate Designed to Do?

The GFE’s purpose was to present mortgage shoppers with all the details they need to know about their mortgage options to help them make well-informed decisions. This transparency ensures consumers are aware of all the costs associated with the mortgage—including fees, APR and other expenses.

Borrowers would receive a GFE three business days after submitting their mortgage application, and after thorough review, would then select which mortgage option they would like to move forward with. 

Are Good Faith Estimates Still Used?

The term “good faith estimate” is not used by lenders anymore, but the concept remains prevalent. In 2015, the GFE was replaced by the loan estimate. Anyone who purchased a home after October 3, 2015, received a loan estimate rather than a GFE. 

In October of 2015, the good faith estimate was replaced by the loan estimate.

If you applied for a reverse mortgage, HELOC, a mortgage through an assistance program or a manufactured loan not secured by real estate, you will not receive a loan estimate. Instead, you will receive a Truth-in-Lending disclosure. 

The purposes of a GFE, a loan estimate and a Truth-in-Lending disclosure are largely the same: providing transparency to borrowers. The main difference—and benefit—of a loan estimate is that there’s more regulation by the Consumer Financial Protection Bureau (CFPB). Since the GFE was not standardized through regulations, they were sometimes difficult to decipher, especially for first-time homebuyers. Conversely, each loan estimate must contain the exact same information in a standardized way, which we’ll cover below. 

What Appears on a Loan Estimate?

According to the CFPB, a complete, compliant loan estimate should include the length of the loan term, the purpose of the loan, the product (fixed versus adjustable interest rate, for example), the loan type (conventional, FHA, VA or other), the loan ID number and indication of an interest rate lock. Additionally, the loan estimate will include the following:

  • Loan terms: A summary of the total loan amount, interest rate, monthly principal and interest and penalties, and whether these amounts can increase after closing.
  • Projected payments: A summary of monthly principal, interest, mortgage insurance, taxes and insurance. Broken down by years 1–7 and 8–30 for a 30-year mortgage.
  • Costs at closing: Estimated closing costs and the total estimated cash needed to close, which includes the down payment and any credits.
  • Loan costs: Origination charges—which is broken down by 0.25% of the loan amount, application fees and underwriting fees—and other fees.
  • Other costs: Taxes, government fees, prepaid homeowners insurance, interest and prepaid property, escrow payment at closing and title policy.
  • Comparisons: Metrics you can use to compare your loan to others. Includes the total principal, interest, mortgage insurance and loan costs you will have paid after five years.
  • Other considerations: Information about appraisal, assumption, homeowner’s insurance, late payment fees, refinancing and servicing.
  • Confirmation of receipt: A line at the end of the statement that confirms you have received the form. This does not legally bind you to accept the loan.

Your loan estimate will also include your personal information, including your full name, income, address and Social Security number. Make sure to double-check all of this information for errors, as they could cause potential problems later in the process.

To better understand your loan estimate, explore the CFPB’s interactive guide.

Closing Disclosure

For first-time homebuyers in particular, it’s important to understand the timeline of events so that you can be prepared for your home buying process and have all the information and necessary documents at hand.

Closing Disclosure Timeline

Lenders are required to send you a loan estimate form no more than three business days after receiving your application. Finally, at least three business days prior to loan consummation—when you are contractually obligated to the loan—you will receive a closing disclosure.

Lenders are required to send you a loan estimate no more than three days after receiving your application and a closing disclosure at least three days prior to loan consummation.

What Is the Purpose of a Closing Disclosure?

The purpose of a closing disclosure is to assign “tolerance levels” to fees listed in the loan estimate form. This means that fees cannot increase over their tolerance level unless a specific triggering event occurs. There are three different tolerance levels:

  • Zero percent tolerance: Fees in this category cannot increase from what is listed on the loan estimate. These fees are typically those paid to a creditor, broker or affiliate, such as origination fees.
  • 10 percent cumulative tolerance: Fees in this category are added together, and the sum of these fees are not to increase by more than 10 percent of the amount listed in the loan estimate. Fees include recording fees and third-party service fees.
  • No tolerance or unlimited tolerance: Fees in this category have no limits at all, and can increase by any amount, as long as they are disclosed “in good faith,” using the best information available. These are usually fees lenders have little to no control over.

Remember not to confuse “zero percent tolerance” with “no tolerance,” as they are quite different. Zero percent tolerance fees cannot increase, while no tolerance fees can increase by any amount as long as it is considered “in good faith.”

Does a Loan Estimate Affect My Credit?

The act of applying for a mortgage may temporarily cause your credit score to dip, as it requires a hard inquiry by lenders. However, you may shop around for different mortgages from different lenders to get multiple preapprovals and loan estimates. As long as you do this all within a 45-day window, these separate credit checks will be recorded on your credit report as one single hard inquiry.

This is because lenders realize that you are only going to buy one home, so they categorize all of the actions you take under one umbrella of applying for a mortgage. Note that you may want to consider the 45-day rule loosely. Prioritize finding the best mortgage deal possible. Even if this means processing a hard inquiry outside of the 45-day window for a better deal, you’ll likely end up saving more money in the long run.

To learn more about what affects your credit and how to work toward improving your credit profile, contact our team at Lexington Law.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Use Storytelling to Get Ahead at Work

Data, facts, and figures may convince people you have the right answer. But sometimes the real challenge is creating a connection that inspires someone to collaborate with or support you. Telling a great story at the right moment may be exactly the tool you need. Learn how to choose your moment and craft that winning story.

By

Rachel Cooke
May 3, 2021

Airbnb that I’ve always loved. When they first launched their home-renting service in 2008, they struggled to attract customers. In 2013, the co-founders decided what they needed was a story. They wanted to do more than win minds with logic, facts, and figures; they also wanted to win hearts. They needed prospective renters and property owners to feel something that would compel them to engage with the service.

Airbnb wanted to do more than win minds with logic, facts, and figures; they also wanted to win hearts.

The company shifted its focus from highlighting facts—like the practicality of renting rooms or homes instead of hotels—to telling stories about the power of belonging.

“Belong anywhere” became the official tagline of Airbnb and led to the creation of their new logo and brand story. Their focus now was on helping people to feel at home wherever they were. Customers began sharing their own stories of belonging. Suddenly, business was booming.

Telling great stories—investing in winning hearts as well as minds—isn’t just for brands. As this Inc. article claims, storytelling is one of the most critical business skills we all need today:

Stories help us understand the world, find our place in it, and even convince others to buy into our ideas and products. … Your stories make you relatable. They show people why something is important rather than telling them.

The two questions we all need to answer are:

  1. How do you choose the right moment for a story?
  2. How do you craft and deliver that story for impact? 

When do you tell a story?

As this Harvard Business Review piece explains:

The art of persuading by winning hearts is about connecting people emotionally to your idea or position.

Sometimes we do want to lead with rational logic and facts. Need to make a data-driven decision on which marketing campaign delivered the best results? Hard data is your friend. But in other moments when your objective is different, a story—a way to connect with someone’s emotions—may be just the thing.

Here, HBR continues, are some of the moments best suited to heart versus mind-winning:

  • Introducing a new idea and trying to pique interest
  • Gaining support for a decision that’s already been made
  • Raising the bar on performance or commitment
  • Leading a team that is struggling with discord or conflict
  • Aligning with creative colleagues, like those in design or marketing

The common thread pulling through these examples is the need for support, allyship, or buy-in. When you need someone to want to do the thing, that’s when a story comes in handy.

When you need someone to want to do the thing, that’s when a story comes in handy.

So I’d like you to take a look at your calendar. What’s upcoming for you? Do you have a pitch meeting with a client? Are you grabbing virtual coffee with a mentor? Will you need support or collaboration from a colleague in a different department?

Have your facts ready. But find a spot for telling a great story. And then follow these steps to craft one.

How do you tell a story?

1. Be a story collector

Telling great stories begins with having great stories on hand. 

When I’m talking to a new client, I have to prove myself. They want to see my track record of success, and I have the stats and metrics to show it. But I also need them to want to work with me. I’m not a vendor, I’m a partner, and I need to build trust and connection. 

So in early meetings, I lean into my arsenal of stories, mostly about my kids. I keep a collection of those on hand for a few reasons. 

First, kids are relatable. Many of my clients have their own. If not, they have nieces, nephews, cousins, and siblings, which helps my stories resonate.

Second, kid stories let me be authentic. I love my kids, and that shows through in my stories, which makes me seem more real.

Third, kid stories are a safe way for me to be vulnerable; to show moments in which I’ve screwed up and can laugh at myself.

Being able to laugh at myself is one thing, but I don’t want to try to impress a client by talking about a professional failure. That’s being a little too vulnerable. Instead, I’ll highlight a mistake that taught me a valuable lesson that ultimately made me better at what I do.

So now it’s your turn. Where will you start to dig for stories that show a softer side of you? Maybe it’s sports, or travel, or cars. Just pick a lane and start building your collection.

2. Establish a story structure

Once you have your source content, it’s time to start crafting the story.

The stories you tell will help others connect with you and want to be part of your success.

While there’s no one right way to tell a story, this  Forbes piece offers a simple outline of the key elements to focus on:

  • Clear moral or purpose. What’s the reason you’re telling this story, to this audience, at this time?
  • Personal connection. Does the story involve you, or someone you feel connected to?
  • Detailed characters and imagery. Does the story have enough visual description that we can see what you’re seeing?
  • Conflict, vulnerability, or achievement. Can we see what you’re learning or how you’re growing?

Play around with these elements, and then try to craft a narrative that brings them all to life. The stories you tell will help others connect with you and want to be part of your success.

3. Practice your story

A skilled storyteller makes it look incredibly easy and natural. But have you ever been caught in someone’s story during this moment?

“So, it was last Wednesday. No, actually, I think it was Thursday. No, wait! It was Wednesday because I remember it was raining. But hold on—first I have to tell you what happened on Monday or this won’t make sense.”

Listening to disjointed stories like these can be painful. Does it matter whether it was Wednesday or Thursday? Nope. Are we going to be able to make sense of—and, more importantly, connect with—a story where the teller has to repeatedly backtrack to fill in gaps? Probably not.

You want to practice and refine your stories so that you subject your listeners only to the details that matter and that move the narrative forward.

You want to practice and refine your stories so that you subject your listeners only to the details that matter and that move the narrative forward. Scrub the rest.

Tell your stories to people you trust and watch their reactions. Where do they laugh or gasp or nod? Which moments tend to make their eyes glaze over?

As Ira Glass, a master storyteller and host of the This American Life podcast, once famously said:

Good storytelling includes, among other things, having the courage to cut the crap. Not enough gets said about the importance of abandoning crap.

Pay attention and refine your technique as you go.

4. Connect your story to a purpose

A well-crafted and delivered story can be charming. Good stories create connection and inspire support. But all-charm-and-no-purpose will leave your audience confused and frustrated.

So once your story has reached its conclusion, be sure your point is abundantly clear so you don’t leave your audience thinking “So what?”

Your story’s conclusion has to deliver an insight that links to the moment.

When I tell a story about one of my daughters there is always some levity, something the audience can relate to. But ultimately, its conclusion has to deliver an insight that links to the moment. 

I tell one story about the headache-inducing outfits my older daughter used to wear to preschool every day. I describe the cornucopia of neons and zippers and feathers, and I see people visualizing the hilarious horror right along with me.

It always wins a laugh. But then I get to the point: It’s important, in business and in life, to find safe spaces in which to test and experiment and learn by trying. I want clients to know this is part of my mindset, that I encourage experimentation in safe spaces, and facilitate learning as we go. The story, when I make that connection clear, helps position me as a partner who also knows how to laugh.

So now it’s your turn. Go try this out, and when you see that first spark of connection, tell me the story of how it went.