Explain the term “good faith estimate” (GFE).

The term "good faith estimate" (GFE) refers to a document that lenders provide to potential borrowers which details the estimated costs associated with obtaining a mortgage loan. This estimate is designed to give borrowers a clear understanding of the costs they can expect to incur, including lender fees, settlement charges, and other expenses related to the loan process. The GFE helps borrowers compare loan offers from different lenders and make informed decisions, as it outlines the key financial elements that may impact the overall cost of the mortgage.

The GFE is particularly significant because it represents the lender's commitment to providing an accurate estimate, thus fostering transparency and trust in the lending process. By detailing estimated settlement charges, it allows borrowers to assess affordability and budget accordingly.

In contrast, the other options reference different aspects of the lending process. A formal proposal from the lender, while related to the loan, is more comprehensive than just an estimate of costs. A credit report pertains to the assessment of a borrower's creditworthiness, and a financial statement showing a buyer's assets does not focus specifically on mortgage-related costs.