What is the function of the Good Faith Estimate (GFE) in relation to the HUD-1 Settlement Statement?

The Good Faith Estimate (GFE) serves a crucial role by providing an estimate of the closing costs that a borrower is likely to incur in a real estate transaction. It offers borrowers an early overview of the financial implications of their mortgage, helping them understand the costs associated with their loan. The purpose of the GFE is to ensure transparency and allow borrowers to make informed decisions, as they can compare different loan offers and select the one that best suits their financial situation.

The HUD-1 Settlement Statement, on the other hand, is used at closing to provide a detailed breakdown of all the actual costs involved in the transaction. It itemizes all transaction fees and disbursements that will occur during closing. The GFE prepares borrowers for these fees by estimating what they can expect to see on the HUD-1.

This function of providing an estimate of closing costs is fundamental, as it aids borrowers in budgeting for their closing expenses and facilitates better comparisons of loan offers.