Good Faith Estimates are detailed documents that estimate expenses associated with a transaction, commonly used in real estate deals. Lenders are responsible for preparing them, and they must be provided to the buyer within a certain timeframe. However, unforeseen factors may cause actual costs to differ from estimates. They are also used in other professions, but should be considered approximations.
Good Faith Estimates are formal documents that itemize all of the expenses associated with a transaction and provide an estimated amount for each of those expenses. Documents of this type are commonly used in real estate deals and are sometimes also used in the sale of other goods and services. In general, a good faith estimate involves making informed projections of the anticipated figure for each expense listed in the document, with the understanding that unforeseen factors could cause those figures to rise or fall when the actual purchase is made.
Creating a good faith estimate is very common within the real estate profession. Many jurisdictions require the preparation of this type of document as part of the paperwork required for any real estate financing. In the United States, the bank, mortgage company, or finance company is responsible for preparing this document, listing all of the usual costs and fees likely to apply to the specific transaction.
A good faith estimate prepared for a real estate deal is usually very detailed. Along with the purchase price, the document will also list closing costs and any charges or fees associated with accruing interest on the loan. Fees for inspections, document preparation, taxes, and obtaining title insurance are just a few of the line items typically found in any bona fide mortgage estimate.
The detailed estimate will also break down the schedule for the payment of each of these fees. This includes stating what fees are due at closing and what fees are included in the overall financing of the mortgage. Providing this level of detail not only gives the borrower a good idea of what is due, but also the overall projected costs of acquiring the property with financing.
In many jurisdictions that require the preparation of a good faith estimate for a real estate transaction, there is a minimum amount of time in which the lender must provide the buyer with a completed document. Often, the good faith estimate must be in the buyer’s hands no more than three business days after the formal loan application is received and processing begins. However, there are some areas where the lender may have up to a calendar week to prepare and deliver the completed document.
It is important to note that while the lender will exercise due diligence in preparing good faith cost estimates, there is always the possibility that your final closing costs will be different. This is because some factors, such as taxes, are not under the direct control of the lender. In the event of sudden changes in tax rates, the lender will have no choice but to adjust the taxes due to new tax laws or procedures. For this reason, buyers should always remember that even well-researched and prepared good faith cost estimates are only an estimate, not a definitive schedule of fees and charges.
Along with the real estate industry, other professions sometimes use more informal forms of good faith estimation. It is not unusual for a good faith estimate to be used to estimate the costs of auto repair, shipping, new construction, or repairs of some kind. As with the real estate model, a good faith estimate prepared by any vendor or service provider should be considered an approximation, not a final figure.
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