A Loan Estimate is a document that details the terms of the home loan you are applying for. By law, the lender you applied for a mortgage with must provide the loan estimate to you within three days of them receiving the application.
This document will outline the details of your loan such as loan terms, projected payments, taxes and closing costs. You will find more details below on each section of the loan estimate.
If you have purchased a house in the past, instead of the Loan Estimate form, you might have received the Good Faith Estimate, or GFE. In October 2015, the Consumer Financial Protection Bureau replaced the GFE with the standard new three page Loan Estimate form that each lender is required to provide all applicants. Using this new standardized form makes it easier for the applicant to compare estimates between lenders when shopping around for a mortgage.
The Loan Estimate is broken up into the below easy-to-read, easy-to-understand sections so the applicant is able to understand exactly what they are being offered.
LOAN TERMS: This first section of the estimate will provide the Loan Amount you are requesting to borrow from the lender. This amount plus the amount of your down payment should equal the agreed upon sale price of the property. If this amount is higher than you expected, speak to your lender as some of the closing costs might be rolled into the amount provided here. The next section of the Loan Terms is your Interest Rate, followed by your Monthly Principal & Interest, Prepayment Penalty, and Balloon Payment.
PROJECTED PAYMENTS: This section will provide the calculations of your estimated monthly payment. Under Payment Calculation is Principal & Interest, Mortgage Insurance, and Estimated Escrow (which can increase over time). The last part of this section details the Estimated Taxes, Insurance & Assessments and will also highlight property taxes and homeowner’s insurance.
COSTS AT CLOSING: Here you will find the Estimated Closing Costs and the Estimated Cash to Close sections, which will indicate the amount of money you will need to bring with you at the time of closing.
The second page of your estimate provides the Closing Cost Details in the format of a worksheet. You will find all the calculations and costs that associated with your loan, including Origination Charges, Services You Cannot Shop For, Services You Can Shop For, Taxes and Other Government Fees, Prepaids (insurance premiums, prepaid interest, taxes), Initial Escrow Payment at Closing (homeowner’s insurance, mortgage insurance, taxes), Other and Calculating Cash to Close.
The final page, Additional Information About This Loan, provides details on the lender and mortgage broker at the top, then breaks down the final three sections.
Comparisons will show you the calculations of the total amount you will have paid in 5 years in principal, interest, mortgage insurance and loan costs. You will also find the Annual Percentage Rate (APR), and the Total Interest Percentage (TIP) for the term of your loan.
Other Considerations highlights things that you may need to consider depending on the lender such as Appraisal, Assumption (what may be allowed if you sell or transfer your property), Homeowner’s Insurance, Late Payment, Refinance and Servicing. These things are specific to the lender you requested the Loan Estimate from. Since all lenders must use the same document, you will find it easy to make comparisons to find the loan that is right for you.
The final section is Confirm Receipt. You must sign the estimate to show that you received the document within the allotted amount of time; however, this does not mean you are accepting the terms of the loan, nor does it mean the loan will be granted without providing additional paperwork to the lender.