An important disclosure in the home loan process is the Loan Estimate. You should always read all of the disclosures a mortgage company issues but if you have to pick just one then it deffinetly would be the Loan Estimate. This disclosures is issued within three days of a completed Loan Application (per federal regulations). A mortgage company cannot issue a Loan Estimate unless you provide following:
- Your legal name
- The amount of income you receive
- Your social security number
- A subject property address
- An estimate on the value of the subject property
- A number for the requested loan amount
One you have provided the Loan Officer this information he/she has to issue a Loan Estimate within three days per the regulations set up by the Consumer Financeial Protection Bureau.
Deciphering The Loan Estimate:
There are three pages to the Loan Estimate and having the knowledge on how to read the Loan Estimate will put you in a better position moving forward. Here is an important tip; make sure the mortgage company, and more specifically the Loan Officer, has a great reputation. Because if you chose to work with someone that has a questionable reputation then the Loan Estimate you recive from that person will probably not be accurate. And when the Loan Estimate is not accurate you're at risk of getting stuck with a higher interest rate and paying more fees.
Page One:
Page one is packed for of information that includes your mortgage rate (and if it's locked), what you're going to pay on a monthly basis, if there is a pre-payment penalty then it will be listed on page one (along with ballon payments, if one applies), estimated total closing costs and the amount of cash needed to close or the amount of cash that is going back to you.
Page Two:
If you are looking for the part where there is a break down of the fees than you need to look at page two. Lender fees, third party fees and goverment recording fees are are listed on page two along with the daily interest charges. FYI - daily interest is the amount of interest you owe from the day the loan funds until the end of the month.
Page Three:
Your mortgage company and Loan Officer contact information is going to be listed at the top of page three. Also on page three is a comparrison chart, Annual Percentage Rate, Total Interest Percentage (TIP), loan assumption options, late payment information, servicing and more. Also on page three is a spot for you to sign and date the disclosure (which is required by federal regulations).
You may recevie more than one Loan Estimate during the process. For example; you'll receive one right after you compelte an application and after that when there are any changes (such as a change in term or loan amount or when you lock in the rate).
Understanding how to read the Loan Estimate is an important part of saving money and locking a low interest rate on your next refinance or purchase transaction. But remember; only work with companies and Loan Officers you can trust, otherwise the information in the Loan Estimate you receive might not be accurate.
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