A good faith estimate in the home lending industry provides all financing costs and payment terms of a mortgage loan, as explained by the Consumer Finance Protection Bureau. The estimations include all costs associated with loan closing as well as financing the loan over specified lengths of time.
A good faith estimate provides a means for comparison between mortgage loans from different lenders. A mortgage lender provides a good faith estimate to the consumer within three days after the application has been submitted. Line items such as interest rate, fees paid to the lender, title fees and home appraisal fees are part of the itemized costs. Differences in these costs are related to the location of the mortgage, federal interest rates and the buyer's credit worthiness to obtain the loan.
The U.S. Department of Housing and Urban Development determines the format of the good faith estimate, which requires lenders to disclose all settlement costs equally. The intention of a standardized good faith estimate is to help consumers fully understand the mortgage financing process. A good faith estimate does not obligate a buyer to purchase from the lender, nor is the lender obligated to sell to the buyer. It is simply a method of understanding the true cost of a mortgage from the initial closing through the life of the loan.