PSI Virginia Real Estate Practice Exam

What does a good faith estimate provide in real estate transactions?

1. An estimate of potential property taxes

2. An outline of expected closing costs and fees

3. A pre-approval for mortgage financing

4. An appraisal value for the property in question

The correct answer is: An outline of expected closing costs and fees

A good faith estimate is a document provided to potential borrowers that outlines the expected closing costs and fees associated with a mortgage loan. This estimate gives borrowers a clearer understanding of the financial obligations they will face when completing the purchase of a property. It includes various fees such as loan origination fees, title insurance, appraisal fees, and other costs that might arise before the transaction is finalized. Providing this information upfront allows buyers to compare costs among different lenders and helps them make informed decisions regarding their mortgage options. It ultimately serves to promote transparency and protects consumers by preventing unexpected costs from arising at the closing table, allowing them to properly budget for the overall cost of purchasing their home. In contrast, the other options do not encompass the primary purpose of a good faith estimate. While potential property taxes and appraisal values are important aspects of the real estate process, they are not what a good faith estimate is designed to outline. A pre-approval for mortgage financing relates to the loan qualification process rather than detailing costs associated with the transaction itself.