A Good Faith Estimate is Not a Commitment

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It’s very important to know that when you receive a Good Faith Estimate from any loan originator, it is not an offer nor is it a commitment to lend.  It concerns me when I’m dealing with a rate shopper (especially in a volatile market where rates may drastically change 3-5 times a day) and they are going to select who handles their mortgage transaction by the good faith estimate.  Here’s a quote from an email I recently received that prompted me to write this post:

"We do appreciate all your kind attention and the fine offer you made to us."

This couple had contacted for the past few months while shopping for homes requesting good faith estimates.  I appreciate that they were upfront with me by letting me know they were receiving quotes from someone else as well.  Depending on the day (actually the time of the day) the quote was prepared, they may have actually selected a lender who is quoting a higher rate than I would have.   Fact is, I only provided them good faith estimates when they requested them; I never provided them any "offers" or "commitments".

A Good Faith Estimate is a detailed interest rate quote for that moment (unless the LO doesn’t track the markets and is simply going off the morning "rate sheets") with the closing costs associated with that rate.  I’m actually considering adding a time/stamp to my GFE’s when I send them just because rates are changing that often (for better or worse) in this climate.

A Good Faith Estimate is not a guarantee of interest rate or closing costs.   In fact, the rate may all ready be different, or the cost to obtain the rate (higher or lower) by the time it’s been created and delivered to the borrower.  Make sure you receive a Lock Commitment from your lender and ask them to guarantee their closing costs.  As a matter of fact, certain situations may cause your rate or closing costs to change from the lock and/or good faith estimate, such as:

  • Appraised value – LTV (higher or lower than estimated)
  • Change in employment
  • Credit scores not what estimated prior to quote.
  • Closing time extended beyond the lock period.

If we have a change to cost (perhaps the appraisal cost less or the LTV is lower than expected changing the loan amount or cost for the rate) I will provide an updated Good Faith Estimate.

My last little bit of advise for you is (if you’re still insisting on shopping lenders by rate) to see if your lender offers a one time interest rate "float down" should the rate improve by more than 0.125%.   This provides you with a ceiling that your rate will never go higher than "x" and allows you to receive the benefit of a lower rate should they improve more than 0.125%.

Just because you have received a GFE from a lender, does not mean that you are qualifed for the mortgage.   It really just means that the lender is quoting this rate with those closing costs on that moment of the day.  Rates are a moving target, and without a lock–it’s just a quote.

Comments

  1. I know it’s not the core topic of your post, but what jumped out at me…. Final rates are based on the LTV per appraisal, not purchase price? That seems like it could cause things to swing significantly in either direction, if someone got either an excellent or a lousy deal!

  2. Mike B.,
    The loan to value is determined by the lesser value of the purchase price or appraisal. Great point!

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