How to use a good faith estimate when home-buying
Good faith - does that even exist in this day and age? Yes, it does. Or at least it does when it comes to buying a home. I know it's hard to believe, but if you are buying a home a good faith estimate can actually work to your advantage.
What is a good faith estimate, you ask?
I know first-hand that the process of buying a home (especially your first home) can be very overwhelming and very expensive. A good faith estimate can help ease your mind when it comes to the costs, fees, and expenses that are associated with buying a home.
A good faith estimate (GFE) is provided to potential home buyers by banks and mortgage brokers. It gives you an estimation of all the costs that come with buying a home, not including the actual mortgage payments. These costs are often referred to as closing costs, and they include (but are not limited to) the cost of the home inspection, the title insurance costs, and the cost of all property taxes.
Closing costs are usually not included in the value of the mortgage loan, so the home-buyer has to have the total amount in the good faith estimate in cash (in addition to the down payment amount) at the time of the home purchase. The total amount of the good faith estimate is not guaranteed, but by law it cannot vary more than 10% from the original estimate.
How can you use a good faith estimate to your advantage?
It's all about the power of negotiation. When you're deciding which home to buy, chances are that the home's cost will be a major factor in your choice. If you find your dream home and it's a little more expensive than you hoped, negotiate with your bank.
You can use the GFE to negotiate the closing costs with your mortgage broker or bank. Don't be shy to show the estimate from one bank or broker to another. Banks will often tell you that closing costs are a percentage of the total mortgage loan and they are unable to provide a discount - but that's not necessarily true.
Banks can choose to pay for a home inspection, refund a portion of your closing costs, or offer to pay a portion of your property taxes in the first year. The truth is that banks want business, which means that everything - and I mean everything - could be negotiable.
With your GFE in mind, approach your home search with a healthy mix of confidence and caution. Your dream home could be just around the corner, and knowing when to negotiate with your bank can make the difference between "for sale" and "sold."