What is the purpose of the Good Faith Estimate (GFE) as mandated by RESPA?

The Good Faith Estimate (GFE) serves a crucial role in the real estate transaction process by providing borrowers with a clear estimation of settlement charges. This requirement, as established by the Real Estate Settlement Procedures Act (RESPA), mandates that lenders issue the GFE within three business days of receiving a loan application. By outlining the anticipated costs associated with closing the loan, such as originating fees, title insurance, and other settlement charges, the GFE enables borrowers to make informed financial decisions and compare different loan offerings.

The focus on providing an estimate within a specific time frame helps ensure transparency and clarity in the lending process, allowing borrowers to understand their financial commitments before proceeding. This part of the lending process helps prevent surprises at closing, promoting better financial planning for the borrower.

Options that suggest the GFE is intended for purposes like offering a detailed loan application or ensuring buyer-seller negotiations do not align with the primary function of the GFE. The GFE is not designed to predict interest rates or provide a basis for negotiations between buyers and sellers, but rather to focus on helping the borrower understand the costs they will face when obtaining a mortgage.