I wrote the following brief explanation for some of our private bankers just to give them an idea as to how a RESPA GFE works with construction loans.
I appreciate anything you can add or find that is incorrect, thanks.
1. Single Closing:
a. When there is a single closing, there should be one Good Faith Estimate (GFE) prepared for the entire transaction, listing all appropriate settlement costs associated with both the construction and permanent portions of the loan including inspection fees, flood insurance, etc. on that one GFE.
b. Any fees that may be specific to construction loans, as well as any costs related to the permanent financing portion of the loan must be on the GFE.
c. The GFE must be given to the consumer within three days of the completed application.
d. The bank will be held to the related tolerances for accuracy of the settlement costs on the GFE through the inception of the permanent portion of the loan.
2. Two Closings:
a. If there are two closings, one for the temporary financing and one for the permanent financing, two GFEs should be prepared reflecting the closing costs for each portion of the loan, but both must be given to the customer within three days of the completed application.
b. The bank must provide the GFE to the borrower with a clear and conspicuous disclosure stating that at any time up until 60 calendar days prior to closing, the loan originator may issue a revised GFE. If no such separate disclosure is provided, the loan originator may not issue a revised GFE in the absence of changed circumstances or another event (24 CFR § 3500.7(f)).
c. The bank may change the settlement costs portion of the permanent financing by reissuing a GFE at least 60 days prior to the closing on the permanent portion of the loan.
d. Again, however, the bank will be held to the related tolerances for accuracy of the appropriate settlement costs on the GFE for the permanent portion of the loan.