During the mortgage application process, you will receive a very important document called the Loan Estimate (LE). This three-page form will provide you with detailed information about your proposed mortgage. Here’s what you need to know to effectively make use of your loan estimate.
What Information Can I Find on My Loan Estimate?
The Loan Estimate will include all the essential details about your mortgage, like:
- Loan Term – this is how long you’ll have to repay the loan. Common terms are 30 years or 15-years. In general, the shorter the term, the lower the interest rate.
- Product – this is the type of loan interest rate you are receiving. The top two are fixed-rate mortgages and adjustable-rate mortgages (ARMs).
- Loan Type – There are a dozen different types of loans. A conventional mortgage is common for those with good credit, stable income, and a decent down payment, while mortgages like FHA or VA loans allow for lower credit scores and lower down payments. Jumbo loans are for those with mortgage amounts well above area averages. Of course, there are differences in the interest rates between all these types.
- Projected Payments – You will be given an estimate of the actual interest rate you’ll have to pay. The principal and interest will be itemized as will an estimate of your property taxes and insurance.
- Closing Costs – These are the fees you will pay to have your loan created and finalized. They typically run between 2% and 6% of the loan total.
- Loan Costs – This lists out how much the lender is charging to create the loan as well any other “services you cannot shop for.” Any mortgage points you agree to pay to buy down the interest rate will be in this section as well.
- Total Cash to Close – this will show you a breakdown of all the fees you will pay before you sign the final contract, including your down payment.
- Annual Percentage Rate – the APR is a measure of the total costs of the mortgage. Unlike just the interest rate, the APR includes things like property taxes, escrow fees, discount points, and mortgage insurance. The annual percentage rate is a better tool for comparison of loan costs than interest rate alone.
Can my Loan Estimate change before my Mortgage Closes?
Yes. If anything changes materially in regards to your loan or loan eligibility we are required to disclose it to you and to issue you a revised Loan Estimate. For example, a revised loan estimate may be necessary when your home does not appraise for the agreed upon sales price or some of your income such as overtime or bonuses are not able to be fully documented. In these cases, and others, we will discuss the changes with you and provide you with a revised loan estimate.
A loan estimate is a great tool to help you easily and more accurately understand your mortgage loan. Understanding what it includes and how it can help you compare different products can help your home buying or refinancing process go much smoother.
Please give us a call if you have any questions about your Loan Estimate. We are here to help you!