Understanding closing costs, financing, and entire lending process with a Good Faith Estimate (GFE) is difficult for most people.

While the government tried to improve the GFE in 2009, it did little to help prospective buyers compare lenders, dissect the costs and therefore pick the best-priced option. The problem with the existing GFE is that it commingles costs that are relevant to your decision-making process with costs that are not relevant to your decision-making process.

In order to properly analyze loan options, you need to isolate the relevant costs, which can be difficult. Many people are not alone in throwing up their hands and just saying “I submit” to the lender’s costs and fees. Most certified public accountants, finance professors and even mortgage lenders cannot figure it out.

The federally mandated HUD GFE Page 2, which should help a buyer do their primary analysis, still totally misses the point on how to help someone analyze the relevant costs because it throws together all the costs on that page with a total at the bottom. Buyers look at that total to help them make a decision. But looking at the bottom number does no good because it is not useful to compare bids from different lenders.

An Improved GFE:

How can we improve upon the existing GFE? Here’s a proposal, which would break up sections clearly, as follows:

Section: I. Costs here are relevant to a borrower’s decision-making process and need the highest level of scrutiny in order to make an informed borrowing decision.

Costs include: All lender costs, such as Loan Origination Points and Discounts, Underwriting, Processing, Appraisal, Flood Cert, HOA Certification, etc.

This section would help a borrower answer the most relevant question: How much, in net total monies, is the homeowner paying to the bank/broker/lender to obtain the proposed/stated interest rate on a mortgage? For example, a net total of $5,000 for a 4.75% 30-year amortizing loan.

Section II. Costs that you, the buyer, can typically get bids on.

Costs include:  Title Insurance, Escrow, Property Insurance, Home Warranty, Home Inspection

Costs here are flexible and a borrower can shop around to find a better deal, or confirm that the listed costs are reasonable. These costs are the more expensive third-party service items like title insurance, property insurance, and escrow charges.

Section III. Costs that are irrelevant to analyzing the best deal for the borrower.

Costs Include: Prorated Interest, Prorated Property Taxes, Prorated HOA Fees, PMI, Gov’t fees, Transfer Taxes, Pest Control, etc.

These costs will be the same regardless of the lender, broker, or other service provider that is used for the transaction. So they are irrelevant for your decision-making process as to which lender will give you the best deal. By excluding them from your analysis, you can better focus on the relevant costs.


In almost every residential mortgage financing analysis, the suggested GFE Section I charges, (Loan Origination Points and Discounts, Underwriting, Processing, Appraisal, Flood Cert, HOA Cert, etc), are the ones that need to be examined, analyzed, compared and reviewed to gain an accurate understanding of how much you are paying for a mortgage lender’s offered interest rate. Without isolating the Section I costs, it will be impossible to determine your best financing option.

While Section II and III costs are relevant to determine the total cost of purchasing a property and how much you need to close escrow, they are irrelevant for determining the best financing deal for you.

A better GFE will help borrowers look at the right information to make the best choice for themselves when looking at competing loan offers for financing residential property. It is all about understanding the nature of the charges and which ones are relevant to your decision-making.

Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a Zillow Blogger, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101 – A Smarter Way to Buy Real Estate”, and loves kicking the tires of a good piece of dirt! See more at

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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