What Is a Loan Estimate?
posted in Mortgage News
If you choose to work with a qualified mortgage broker in your locality, they will help talk you through your loan estimate, a 3-page document outlining the most important details of your loan, and help you to understand what the lender expects from you if you choose to proceed.
Loan estimates in a little more detail
Once you’ve submitted your loan application, within 3 days you’ll receive your loan estimate, and it will contain details about the loan amount, interest rate, monthly payment and closing costs. Whatever lender you choose to apply for a mortgage with, the loan estimate will be set out the same, as is required by law. This makes it much easier to compare offers side by side, and while it isn’t an acceptance to fund your loan or guarantee a rate or other factors, it gives you a good idea of what the lender is expecting you to provide them with. When you receive your loan estimate, it’s only valid and binding for 10 days.
Mortgage phrases to be familiar with
When you receive your loan estimate, it may contain words and phrases that you’re not familiar with, and while your mortgage broker can help explain them for you, it can be helpful to have a general idea of their meaning:
Escrow
Used by your mortgage lender to hold onto your homeowners’ insurance and property tax payments, an escrow account enables the lender to pay for them every month so you don’t have to. However, you can opt to waive escrow if you prefer to take care of your insurance and taxes yourself.
Prepaids
The amount of interest owed between the date you close and your first mortgage payment, along with insurance premiums and property taxes, can be placed into escrow until they need to be paid, hence the term ‘prepaid.’
Points
By paying an amount of money upfront in the form of points, you can buy a lower rate of interest on your loan, with every point costing around 1% of the total loan amount; reducing the interest rate by approximately 0.25%.
Assumption
Should you decide to sell or transfer the property to someone else, that person may be permitted by the lender to take over (or assume) your loan, instead of requesting that they get a new one.
Servicing
Once the loan has closed, the majority of lenders will sell or transfer the loan to a mortgage servicer who will begin collecting your payments.
How accurate are loan estimates?
Because a loan estimate is just an overview of what the lender expects to offer if you choose to move forward with the loan, you can expect some other expenses such as closing costs, to be updated before you close. Your interest rate may also not necessarily be the same one that you get, unless you chose to lock it in with your lender, which may be a wise choice, as rates can vary a lot, and often.
However, a loan estimate is certainly a useful tool for comparing offers.
To make the entire mortgage process as simple, quick and stress-free as possible, work with a mortgage broker from the outset.