New York State Real Estate Salesperson Licensing Exam

What is the primary purpose of a good faith estimate in real estate?

1. To indicate market value

2. To provide potential closing costs

3. To assess property taxes

4. To evaluate loan terms

The correct answer is: To provide potential closing costs

A good faith estimate serves as a crucial document in the real estate transaction process, particularly in the context of obtaining a mortgage. Its primary purpose is to provide potential closing costs associated with the transaction. This estimate is typically issued by lenders after a loan application is submitted and gives borrowers an idea of the expenses they will need to pay to finalize the loan, including fees for services such as appraisals, credit reports, and title insurance. This transparent breakdown of costs allows buyers to better prepare financially for their closing obligations. Understanding potential closing costs helps buyers avoid surprises at closing and enables them to budget effectively. It also fosters a sense of trust and clarity between lenders and borrowers, promoting informed decision-making. While assessing property taxes, evaluating loan terms, and indicating market value are important aspects of the real estate process, they do not encompass the main objective of a good faith estimate. The focus of this estimate is specifically on outlining the costs tied to the closing process, which is fundamental for any buyer securing a mortgage.