In an effort to reduce consumer confusion when it comes to obtaining a loan, the federal government enacted reforms to the Department of Housing and Urban Development began, on January 1, 2010, to require the use of a standardized form of Good Faith Estimate (GFE). The concept behind the reform makes sense, but in reality, not much has changed.
The charges on a good faith estimate are now broken into three parts. The first part contains fees that CANNOT change. These are your lender fees. The goal is to impair a lender's attempts to pull a bait and switch on a borrower. There is no tolerance for any deviation between this part of the terms of the good faith estimate and the actual costs at closing.
The second section of the GFE presents fees that cannot increase by more than 10%. This is where you will find title charges, recording fees, and certain other fees the lender can find out by doing a bit of due diligence. Keep in mind, the lender does NOT set these fees. Nonetheless, the actual fees charged at closing cannot increase by more than 10%.
The problem? Well, remember, the lender does not control these fees, so they may turn out to actually be higher than the lender estimates. If they do go up by more than 10%, the lender must either re-disclose the GFE or pay down the difference. I have seen lenders pick up the difference, but more commonly, they have to put the closing on hold and re-disclose. Even if a borrower wanted to pay the higher cost difference and close anyway (because perhaps the borrower's failure to close would constitute a default or require the payment of a penalty for failing to close on time), the federal law would prohibit the closing.
In reality, what seems to happen today is that the good lenders get the estimates right while the bad lenders over-disclose. The lenders now have been playing the game long enough and are smart enough to not get caught with an unanticipated increase in most cases.
The third section contains fees that can change no matter what. There is no guarantee for these fees. They can vary significantly.
Finally, although the GFE specifies fees, it does not do a good job at predicting the amount necessary to bring in to close. There are charges that are variable - the amount of per diem interest paid at closing changes based on when the borrower closes. Also, in some jurisdictions where tax bills are imminent, borrowers may have to TI (title indemnity) for property taxes. All kinds of things can change and unanticipated situations can spring up.
Thus, there is no rule of thumb or standard for how much the GFE can differ from the actual costs. A borrower need to do some homework to get the best estimates available. Remember, the GFE is only an estimate and it is usually made in the barest of good faith.
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