Whether you've started the home-buying process or you're planning to refinance, you've probably heard of loan estimates.
In essence, a loan estimate gives you a list of the things you need to know about the loan you're applying for. This includes the interest rate, other charges, etc. Once you have it, you can know and adjust your budget and get ready for the down payment.
It consists of a three-page document providing loan information, including interest rate, monthly payment, and the total closing cost of the loan. It also contains information about the estimated cost of taxes and insurance and how the interest rate and payments may change in the future.
The form also specifies if the loan has special features you want to include, any penalties you might pay off for early or late repayment, negative amortization, etc. Therefore, you mustn't just read the form but also, understand it.
The loan estimate is usually easy to read and understand. It often comes with a complete explanation of the loan and what it covers. All lenders use a standard loan estimate form, so the simple format makes comparing much easier to see which loan provider offers the best option.
Normally, you can expect your loan estimate in as fast as three business days, unless you don’t meet the lender's qualifications and your application is rejected.
When this happens, lenders must give you a written notice within 30 days and state why your application is being rejected. A loan estimate has no cost, the only fee you will pay to get a loan estimate is the credit report fee.
When you do get a loan estimate, its validity is within 10 business days. So, you need to evaluate carefully within this period if you will accept the loan offer or not. You may request the lender to change the terms and give you a new loan estimate if you need more time to think and compare with other offers. However, even if lenders give you a new estimate, it doesn't necessarily mean it has a different or worse offer.
Nonetheless, it may change depending on the market conditions and your credit. Like stocks, mortgage rates can change multiple times within a single day, So, you need to be sure of the property you want to buy and that you like it before making an offer and deciding to move forward.
You need to review your loan estimate carefully before you move forward to the underwriting process to make sure you understand the loan and can afford to pay it. You can and should get a loan estimate before finding a property you want to buy, especially in a seller’s market where buyers need to act quickly to make a purchase offer. In case you still don’t have the address of the home you want, you can provide a similar type of home and its price since a loan estimate is not an official pre-approval, lenders can still issue a revised estimate after you have chosen a property. If you do move forward, lenders will then ask for additional financial information.
Having a mortgage pre-approval and even a pre-underwriting can make you feel confident about getting the financing. You can check your loan estimate against closing disclosure before you sign your closing documents.
Requirements To Get A Loan Estimate
Getting a more detailed estimate means you need to provide more information such as your debts, specific loan type, and other financial information.
You may ask the lender if there are any inaccurate details on your name. Having a misspelled name can lead to major issues and can cause delays.
Check this information to make sure that what is written is what you discuss with your lender.
Take a look if the loan amount is what you are expecting. On a house purchase, the loan amount plus your down payment should equal the sale price of the house.
The principal is the amount you will borrow from the lender while the interest is the charge lenders put for lending you money. Expect that your total will be higher and pay more due to taxes and insurance.
Check if there are charges related to homeownership that are bundled in your monthly payment.
Make sure that the total here is what you expected since this will be your monthly payment including the insurance.
Do you have items in this section that are not escrowed? If you do, you’ll need to pay this cost directly in large lump sum payments and ask how often you need to make these payments.
This is the upfront cost you will be charged to get your loan and transfer ownership of your property This is included in your payment at closing.
This is an additional payment you have to pay, so having extra funding is a must.
Terms You Need to Know When Looking On Your Loan Estimate:
These are the things you need to know about loan estimates. If you have more questions, feel free to drop them in the comments or call us at 317-316-8224 we can assist you.
Caroline Soriano