The loan estimate was invented to help people get an idea of the mortgage loan, the details therein. The loan estimate enables you to compare one home loan against another home loan.
Mortgage lenders have to present a mortgage loan estimate. No excuses. And just so this condition sinks in, all mortgage lenders have similarly structured loan estimate forms, without exception. Second, lenders have to present the loan estimate form to the applicant within three days of the application.
Loan Overview
Before 2015, the loan estimate was called ‘good faith estimate.’ The name change came with the ‘Truth in Lending Act,’ which was enacted to help borrowers understand mortgage loans better.
The loan estimate form begins with a loan overview. In this situation, taking notes will help you tally what was promised and offered in summary. Discrepancies, for example, in the mortgage loan interest rates, should be flagged and sorted out before choosing a lender.
What A Loan Estimate Contains
The ‘loan estimate’ document contains information on the loan terms, including the amount, the rate of interest, and whether there are other pre-payment conditions.
Basic Details
The second topic covered in the loan estimate is the projected payments: how much of the repayment will be mortgage loan interest rate, how much the principal? The time limit for repayment of the mortgage loan, and what is called ‘payment calculation.’ There will also be relevant information on property taxes and insurance.
Closing Cost
Third, the loan estimate will bring out how mortgage fees vary from lender to lender. But make sure whether a lower interest rate is not being made up with some other charges. This section makes two things clear: What is the closing cost of the mortgage loan, and the exact cash needed to bring the deal to a close.
A One-Page Low-down
The fourth section of a Loan Estimate is very important. It breaks the loan down into its various components. It also informs you of the fixed expenses. The good news is all the costs are condensed on one page.
Things You Might Forget
A fifth section of the loan estimate is a sort of ‘reminder.’ It lists costs that you might have forgotten to mention or have overlooked, something like recording fees. The important thing is they, too, matter.
Closing Costs
The sixth section looks at the closing costs, reckoning how the mortgage lender calculated the total.
Looking Ahead
Section 7 is important. Especially for comparisons of the various loan offers. Look for where you will be in five years, how much you will have paid off then, and how much of the loan will have been paid in five years. Do not forget to pay attention to the annual rate or APR and the total interest percentage or TIP.
Last, the loan estimate will tell you if the mortgage loan lender insists on a home appraisal and whether the mortgage is “assumable” when you sell?
Summing Up
The loan estimate is a standalone document. It tells you all you need to know about the mortgage loan, including the interest rate, in an easy-to-understand manner. It makes you ‘aware.’ It increases your comfort level with a home purchase. It saves you in more ways than one.
Also Read: The Best Business Loans: Making Your Next Acquisition Easy
