What is a Loan Estimate?

When you apply for a mortgage, one of the most important documents you’ll receive is your Loan Estimate. This government-mandated form is designed to help you understand the costs associated with your home loan, making it easier to compare offers from different lenders. Knowing how to read and interpret your Loan Estimate can empower you to make informed decisions as you move forward in the homebuying process.

What’s Included in a Loan Estimate?

Your Loan Estimate provides a breakdown of key financial details, ensuring transparency in the lending process. The form highlights four areas:

1. Loan Terms – This section details your loan amount, interest rate, and whether your loan has features like a prepayment penalty or balloon payment.

2. Projected Monthly Payments – You’ll see a breakdown of principal, interest, estimated taxes, insurance, and other potential costs.

3. Estimated Closing Costs – This includes lender fees, third-party costs, and prepaid expenses such as homeowner’s insurance and property taxes.

4. Total Interest Over the Life of the Loan – This figure shows how much interest you’ll pay if you keep the loan for its full term.

What Can and Cannot Change?

While your Loan Estimate provides a good snapshot of expected costs, some figures are subject to change. Here’s what you need to know:

1. Fixed Costs: Certain fees, such as Origination Charges, cannot change between the Loan Estimate and closing.

2. Limited Variability Costs: Some fees, such as recording fees and lender-recommended third-party services, can increase, but only by up to 10%.

3. Variable Costs: Other expenses, like prepaid interest, property taxes, and services you shop for independently, may fluctuate beyond the 10% threshold.

Comparing Your Loan Estimate to the Closing Disclosure

Once your loan is finalized, you’ll receive a Closing Disclosure at least three days before your settlement. It’s essential to compare this document to your original Loan Estimate to ensure there are no unexpected changes. If any significant cost increases occur during the loan process, your lender is required to issue a revised Loan Estimate, and depending on the timing, this could lead to a closing delay.

Bottom Line:

Your Loan Estimate is a valuable tool in understanding your mortgage and ensuring you get the best possible terms. Keep a copy of this document to review alongside your final Closing Disclosure, and don’t hesitate to ask your lender questions about any discrepancies. Being informed can help you navigate the mortgage process with confidence and avoid any last-minute surprises at the closing table.

Looking for more mortgage insights? Contact us today to discuss your financing options and get personalized guidance on your home loan journey!