Loan Estimate Guide for Mortgage Borrowers
What is a Loan Estimate?
If you’re planning to apply for a mortgage in the near future, it is very important to familiarize yourself what a loan estimate is. As of October 3rd, 2015, this document replaces the good faith estimate and the initial Truth and Lending statement you might have received in prior mortgage applications.
So what is a loan estimate? Let’s take a closer look.
Important Parts of the Estimate
The loan estimate is a standardized, three-page document that provides information regarding your potential mortgage loan. This includes the loan product type, the loan amount, the loan terms and details and the projected closing costs.
The document will also provide your projected monthly mortgage payment as well as any charges for fees paid out of an escrow account like property taxes and homeowners insurance.
The figure located at the bottom of page 1 shows the estimated amount of cash you will need to close the transaction. The estimate separates closing fees by those you can shop for and those you cannot.
If your lender will not allow you to shop for a certain service like a home appraisal, it is bound to honor the figure quoted in the estimate.
For services, you can shop for you are free to find a third-party service provider of your choosing. If you choose from the lender’s list of third-party service providers, you’re quoted figures carry a 10 percent tolerance, meaning that those fees cannot increase by more than 10 percent in the aggregate at closing.
If you select a service provider that is not on your lenders approved list this figure can change without a tolerance limitation. Other fees quoted also carry a 10 percent tolerance for adjustment. These include recording fees and other taxes.
Compare Mortgage Fees and Terms
The third page of the enables you to compare the terms and fees of this mortgage with other potential loans. This section will show you how much interest compared with the principal you will pay in the first five years of the loan. The table also shows you your annual percentage rate or APR as well as the total percentage of interest you will pay over the life of the loan.
The loan estimate will provide you with other important terms of your loan including: Your rights to receive a copy of your property appraisal; whether this loan can be assumed by another person; whether you are required to purchase homeowners insurance; your lender’s policy for late payments or refinancing; and whether your lender will keep or transfer your loan.
You may need to confirm receipt of the loan estimate at the bottom of page 3 depending on lender requirements. Keep in mind that this does not bind you to the loan. Before your transaction closes, you will receive the closing disclosure, which will provide you with final closing costs and loan terms. You can compare these two documents to ensure that your final figures do not exceed legal tolerance levels.
If you have questions regarding your loan estimate, you will find your lenders contact details on the top portion of page 3. With your loan estimate in hand, you are one step closer to your new home.
Sample Loan Estimate and Mortgage Forms
Note that the Consumer Financial Protection Bureau (CFPB) requires your lender to provide a loan estimate in writing within 3 business days of receiving your mortgage loan application.
To help you understand what a loan estimate is, I invite you to download the free page-by-page guide to the mortgage loan forms. It includes a sample loan estimate form with detailed explanation.
More Real Estate Tips and Videos
If you’re planning to buy or sell your house in Cerritos in the near future, you might find the following real estate videos useful:
- What is Escrow and How It Works in Real Estate (Video)
- Real Estate Contingencies When Buying a Home (Video)
- How to Get a Real Estate Report for Your Area (Video)
Reference and source of information: https://www.firstam.com/ownership/transaction-disclosures