Three days after you apply for a mortgage you will receive a 3-page document called the Mortgage Loan Estimate.
The law requires residential lenders to provide you with this standardized document so you can make an informed decision about whether the proposed home loan is right for you. You should receive this document both for new mortgages and for refinance mortgages. The document also helps borrowers compare offers from lenders, budget for homeownership, and prepare for close.
The estimate is known as a “good faith” estimate, which means the numbers aren’t final.
What’s included in the estimate?
You’ll find the following information in your estimate:
- The interest rate and annual percentage rate (APR)
- Origination charges
- Whether you’re being offered an interest rate lock
- When the lock expires
- Itemized closing costs
- The amount you’ll need to bring to closing
- Estimated taxes
- Estimated insurance
- Estimated assessments
- Loan terms
- Projected payments
- Loan type
- Loan amount
- Prepayment penalties
- Whether the loan includes balloon payments
This information can help you compare lenders, and may even help you negotiate with your preferred lender.
Click here to view an example of a loan estimate form.
See also: The Role of Appraisals in Home Buying
Using Your Mortgage Loan Estimate
You can use your Loan Estimate in the following ways:
- To evaluate whether you can afford the mortgage.
- To shop for homes within your budget.
- To compare lender offers.
- To negotiate with lenders.
- To save sufficient money for closing.
Your Loan Estimate should reduce or eliminate surprises at the closing table.
See also: From Application to Approval: A Guide to the Loan Underwriting Process
What happens if the final numbers are significantly different from your mortgage loan estimate?
Certain charges may change between your mortgage loan estimate and your closing disclosure, including:
- Fees for third-party services
- Interest rates (if your rate isn’t locked in)
- Homeowner’s insurance premiums
- Initial escrow account deposits
- Prepaid interest
- Recording fees
Some charges cannot change:
- Appraisal fees
- Lender fees
- Origination charges
- Underwriting fees
- Transfer taxes
You have the right to ask your lender why any rates or fees have changed. If you aren’t satisfied with the explanation, you can change lenders before closing. If the lender made illegal changes, you may have the right to compensation.
See also: The Complete Guide to Closing Costs for Homebuyers
Apply for Your Next Mortgage With Alex Doce
You know what’s even better than understanding your mortgage loan disclosure on your own?
Working with a trusted advisor who will answer all your questions about it.
Alex Doce is the advisor you’ve been searching for. He’s happy to explain every line of your disclosure if you want, and will help provide you with a competitive loan that fits into your budget.
