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Good faith estimates are formal documents that itemize all expenses associated with a transaction and provide an estimated amount for each of those expenses. Documents of this type are routinely used in real estate deals, and are also sometimes employed with the sale of other goods and services. In general, a good faith estimate involves making providing informed projections of the anticipated figure of each expense listed on the document, with the understanding that unforeseen factors could cause those figures to increase or decrease when the actual purchase is made.
The creation of a good faith estimate is very common within the real estate profession. Many jurisdictions require the preparation of this type of document as part of the necessary paperwork for any real estate financing. In the United States, the bank, mortgage company or finance company is responsible for preparing this document, listing all usual costs and fees that are likely to be application to the specific transaction.
A good faith estimate prepared for a real estate deal is normally very detailed. Along with the purchase price, the document will also list the closing costs, and each charge or fee associated with the accrual of interest on the loan. Charges for inspections, document preparation, taxes, and the securing of title insurance are just a few of the line items that are normally found on any mortgage good faith estimate.
The detailed estimate will also break down the schedule for the payment of each of these fees. This includes indicating which fees are due at the time of closing and which fees are bundled into the overall financing of the mortgage. Providing this level of detail not only gives the borrower a good idea of what must be paid when, but also the overall projected costs of acquiring the property with financing.
In many jurisdictions that require the preparation of a good faith estimate for a real estate transaction, there is a minimum time frame in which the lender must supply the buyer with a completed document. Often, the good faith estimate must be in the hands of the buyer no more than three business days after the formal application for the loan is received and the processing begins. However, there are some areas where the lender may have as much as a calendar week to prepare and deliver the completed document.
It is important to note that while the lender will exercise due diligence in the preparation of good faith estimate costs, there is always the potential for the final closing costs to be different. This is because some factors, such as taxes, are not under the direct control of the lender. Should changes in tax rates occur suddenly, the lender will have no choice but to adjust the taxes due to reflect the new tax procedures or laws. For this reason, buyers should always remember that even well researched and prepared good faith estimate costs are still only an estimate, not a definitive schedule of charges and fees.
Along with the real estate industry, other professions sometimes make use of more informal forms of the good faith estimate. It is not unusual for an estimate prepared in good faith to be used for estimating auto repair costs, delivery charges, new construction, or repairs of some type. As with the real estate model, a good faith estimate prepared by any vendor or service provider should be viewed as an approximation, not a definitive figure.