What percentage tolerance is applied to third party fees on the Good Faith Estimate (GFE)?

The correct percentage tolerance applied to third-party fees on the Good Faith Estimate (GFE) is 10%. This rule is part of the guidelines established under the Real Estate Settlement Procedures Act (RESPA). The GFE is designed to provide borrowers with a clear picture of the fees they can expect to pay at closing, helping them make informed decisions.

Under RESPA, lenders are required to disclose these fees accurately while allowing for a tolerance level. Third-party fees, such as those related to appraisals, title services, and inspections, fall under a 10% tolerance rule. This means that when the final Closing Disclosure is issued, the total of third-party fees must not exceed the estimated amount disclosed on the GFE by more than 10%. If the fees do exceed this tolerance, the lender is required to absorb the excess costs rather than passing them on to the borrower. This regulation aims to protect consumers from unexpected and inflated closing costs, thereby promoting transparent lending practices.