I so sorry that you are confused by all this, but it is understandable. The truth is a real estate sale is really as many as ten or more different transactions all happening at different times within the escrow period. Making sense of all of this is difficult â€“ but not impossible. It takes two things; First, you need to take the time to sit down with your lender and have them go through a detailed explanation of your transaction. The second thing is an experienced loan officer who will spend the time to make sure you fully understand all of the costs involved, which can vary and why, and which are fixed. I good lender will do this up-front, and any time something changes.
Jim and George are correct that you should really have done this early in the transaction. In fact, I think it should be the first thing you do â€“ even before you find a property to buy. The problem is what many lenders will do is go ahead and issue the GFE but not go over it â€“ or anything else! If the forms being signed are not explained there is really no way to begin to understand what will be happening.
Terry is correct that the down payment is not on the GFE, and Lance is also correct that the initial GFE is almost always a very high estimate of the closing costs. Grant did a great job of explaining what things a lender needs to have in order to have â€œan application,â€ and he is also correct in saying that this must be issued within three days of having all of the aforementioned items. Basically these posters have down a great job of explaining what a GFE is, when it has to be done, etc.
BUT, nobody really addressed your question â€“ probably because nobody wants to talk about the giant white elephant in the room. The fact is the GFE is very confusing and does a really poor job of explaining what to expect. This document was developed by HUD with input from lots of consumer groups, and is designed to hold lenders accountable for the estimates they provide. The mortgage industry tried to give input, but frankly we were seen as the problem that this document was supposed to fix, so out input fell on deaf ears. (There is a lot of truth to this assumption.) The problem with this approach was that none of these people had ever had to explain the very complicated series of transaction to a homebuyer, so the document does a poor job of showing the buyer what to expect. There is no place for the down payment, the total payment is not shown in one place (so the borrower has to find the elements of the payment in several different places and add them up on their own,) and no place on the document does it show how much money will be needed. It doesnâ€™tâ€™ even explain what costs are paid by the buyer and what costs will be paid by the seller. Then just to make it more exciting, the lender is responsible for the accuracy of most of the items showing â€“ even though the lender has no control over many of these costs because they have no say in who will be providing these services, nor do they negotiate the contract which determines who will be paying what. The result of this is what Lance said â€“ lenders are forced to estimate the highest possible costs because if they are low, they have to pay the difference!
Every experienced lender I know complies with the rules and issues the proper documents within the correct timeframes. However, when it comes to explaining the transaction, they use some other form. It can be called a â€œPurchase Costs Breakdown,â€ a Transaction Worksheet,â€ or whatever term they come up with. Every lender software has its own version of this documents; I have an Excel file that I originally wrote in Lotus 123 over 20 years ago that I think is better than all of them, (but Iâ€™m probably biased on that.) Basically what Iâ€™m talking about used to be what we called a GFE prior to the governmentâ€™s version. You see, despite what the government and consumer groups thought, the problem was not the document; the problem was either inexperienced lenders who didnâ€™t know how to put this document together, or dishonest lenders who would leave off fees to make their services appear less expensive â€“ or both.
The good news is that they know that there is a problem and are working on creating a new disclosure which should be much better than the current GFE. There are two versions being floated around, and while I think the both are still too cumbersome, they are both dramatically better than what we have to use now. But for you and your current transaction, have your lender go over their version of what Iâ€™m referring to above, and make sure you understand it. Make them answer all your questions. Real Estate transaction are complicated, but you should expect that your lender will break down your transaction so you can understand it thoroughly.