A loan estimate is crucial to obtain when looking for a loan. This estimate not only gives you the details of a mortgage but also compares offers from different lenders to determine which loan is best suited for you. Here’s an overview of what you’ll find on your loan estimate and how it can help you choose the best mortgage option.
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After you’ve submitted a mortgage application to a mortgage lender, they will send you a loan estimate. This three-page document details every part of the mortgage offer: the loan type, interest rate, the process of payment for the principal and interest, and other upfront fees along with the down payment.
Having a loan estimate is crucial since you can compare the numbers on different offers prior to accepting one. In some cases, you can even leverage a loan estimate from one lender to argue for a better deal from another.
There’s a lot of information to digest on the three pages of a loan estimate. However, it’s important to read it over quickly to get the ball rolling on moving forward in the home-buying process.
These terms cover what type of loan you’re applied for and what conditions apply to it.
A second section of the loan estimate will detail the projected payments of the mortgage. This details the different fees that make up your monthly payments.
This section of the loan estimate details the closing costs that come with the loan, which includes your down payment and fees. These costs will have to be paid on the closing date, so it’s important to know that you’ll be able to have enough cash on hand to cover them.
Fees that go to the lender are known as fees that you can’t shop for. They include the cost of appraisal, credit report, and tax monitoring that the lender carried out for your specific loan.
However, there are other fees that can be shopped around for. This means that you can compare rates and terms which mostly involve your property’s title search and policy
We wrote a blog all about the unexpected costs that may come with a mortgage, read it here!
On the third page of the loan estimate, you’ll find breakdowns of how interest and principal will be paid off throughout the loan along with the estimate’s APR and TIP.
An APR rate is the sum of your interest rate and all of the additional fees charged by the lender. APRs are calculated the same way for each lender, allowing you to quickly compare rates when you have multiple offers.
Similarly, the TIP (Total Interest Percentage) is a percentage that shows the total amount of interest paid throughout the loan’s lifecycle. Longer loan terms will have larger TIPs, making this another valuable tool when comparing loan options.
The last section of the loan estimate is titled “Other Considerations.” This section includes crucial information about other requirements that come with the loan such as the terms to refinance, insurance standards, and late payment penalties. Evidently, this section does differ by lender and could be a good indicator of if the loan is the right fit for you.
To get a loan estimate, you’ll have to provide the lender with information concerning the property you’re interested in, your proof of funds or employment, and your financial history on a mortgage application. The application will take some time to fill out and will require official documentation including your social security number, tax records, income statements, and record of debt.
It’s important to know that your loan estimate, while detailed, still only provides approximate numbers and is not an official record of the payments and rates associated with the loan.
When you decide to move forward after looking through the loan estimate, your lender will send a closing disclosure three days before your closing date. This is so you have enough time to look over the final numbers and ask any follow-up questions
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What is a mortgage loan estimate? Essentially, it’s an approximate breakdown of all of the numbers that affect your monthly payments and your closing costs. This includes anything from how the principal and interest are paid off over time to the taxes that will be held in escrow from your monthly payments.
An estimate gives you the opportunity to compare a mortgage with other options to find out which set of payments and fees works best for you.