A Loan Estimate is a form that a lender must provide you within three days of receiving your loan application. This form contains important information regarding your possible home loan, including interest rate, estimated monthly payment, and estimated closing costs. Check this form carefully for accuracy and be sure to tell your lender about any errors immediately.
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- Applicants – this is you. Check your name and the address. If anything is misspelled, ask the lender to correct it. Even minor errors can cause big problems down the road.
- Loan Term, Purpose, Product and Loan Type – make sure these are what you expected and have any errors corrected.
- Rate Lock – check to see if your rate is locked. Some lender’s may lock in your rate to ensure it can’t go up (or down) before closing. When interest rates are low, it is a good idea to lock in your rate.
- Loan Amount – this is the amount of your mortgage. If you are purchasing a new house and are putting money down, check to see that the loan amount plus your down payment equals the sale price. If not, ask your lender why.
- Interest Rate – if the right column says “YES” then your interest rate is adjustable. This means your interest rate could change after closing, which could make your monthly mortgage payment go up (or possibly down) in the future.
- Prepayment Penalty – if your loan has a prepayment penalty, this can be risky. Request information from your lender about other options.
- Balloon Payment – also risky. Ask your lender for other options.
- Estimated Total Monthly Payment – this is how much you will pay for your home each month. Is this the amount you were expecting? Are you comfortable with this payment amount and sure you can make this payment on a monthly basis?
- Estimated Taxes, Insurance & Assessments – are these listed on your form? If they are, you will be required to pay these costs directly, many times in lump sum payments that can be rather large. Do you know how often you will be required to make these payments? Can you comfortably add that much extra to your housing budget?
- Estimated Cash to Close – this is the amount of money you will be required to pay at closing, on top of any other money you have already spent. You must have this money on hand, as it is usually required to be paid via cashier’s check or wire transfer. Your lender will most likely require proof that you have the funds before going to closing.
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- Origination Charges – these are upfront fees charged by your lender, such as application fees, underwriting fees, processing fees, rate-lock fees and verification fees. Origination charges may be more or less itemized, depending on the lender. It is the total that matters. You can also use the Origination fees as a way to tell if you have a competitive loan offer. Compare these fees to Loan Estimates from other lenders (if you have them) to see any differences.
- Points – if this line contains an amount, it means you are paying points to the lender to reduce your interest rate. There may be a loan very similar to this one available without points, if that is the route you would like to take. Ask the lender what other options are available if you do not want to pay the points.
- Services You Cannot Shop For – the services in this section are required. And the service providers in this section have been chosen by the lender and it is a requirement to use their service providers. Compare the overall cost of these items with Loan Estimates from other lenders. Because you are unable to shop around, it is a good idea to compare with other lenders to see if there are savings available.
- Services You Can Shop For – the services in this section are also required. However, you can shop around yourself for these services and possibly save money doing so. Your lender should be able to provide you with a list of approved providers that you can get in touch with for these items.
- Homeowner’s Insurance Premium – this is set by the insurance company, not the lender. You get to choose your insurance company. Shop around, compare and save. Check this number to ensure accuracy.
- Property Taxes – the property taxes are set by the local or state government, not by the lender. Check to make sure the lender has estimated these costs accurately. You can contact the local tax authority for more information if necessary.
- Lender Credits – if an amount is shown here, that means your lender is giving you a credit or rebate to offset closing costs. Do you know what this is for? You could be paying a higher interest rate for this credit. If that is not something you want to do, discuss it with your lender.
- Estimated Cash to Close – this number should match the number on page 1. The entire section explains how the number was calculated. If it is not what you were expecting, discuss with your lender.
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- Loan Officer – is the name here the person you have been working with? Most loan officers must be licensed and registered to work in your state. If not, ask questions.
- Comparisons – this section offers useful calculations for comparing this loan with those from other lenders. Use this section to ensure you are getting the best deal.
- Late Payment – this tells you how much extra you will owe if you make your mortgage payment late. It is always important to pay your mortgage on time.