Understanding the Mortgage Loan Estimate Form
The Loan Estimate is a required loan disclosure that must be provided to a home loan applicant within three business days of the application. According to the Consumer Financial Protection Bureau, the Loan Estimate provides details about the loan you have requested. Before we get into the details of the Loan Estimate it is important to know if you should have been provided the form. When did you make loan application?
What is Considered a Complete Loan Application
A complete loan application is defined as receiving the following information;
- Your full name
- Your estimated current income
- Your social security number to obtain a credit report
- A Loan Amount
- The estimated value of the property being purchased or refinanced
- The complete subject property address
Once all of the information above has been added to the loan application, you have technically made the application and the initial loan disclosures are due within three business days of completion. Within the three business days, you will receive a copy of your initial loan estimate. Review the estimate carefully. The estimate can clarify many of the questions you might have throughout the loan process.
Loan officers and mortgage companies are bound by law to provide the most accurate loan estimate possible. In most cases where a loan officer underestimates the closing costs, they are required to pay for any increase in costs. Because of this rule, consumers are protected from an undisclosed increase in closing costs.
What is the Loan Estimate
The form provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan. The Loan Estimate also gives you information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future. In addition, the form indicates if the loan has special features that you will want to be aware of, like penalties for paying off the loan early (a prepayment penalty) or increases to the mortgage loan balance even if payments are made on time (negative amortization). If your loan has a negative amortization feature, it appears in the description of the loan program.
Loan Estimate Example
When you receive the initial loan estimate, make sure to save a copy of the form. Anytime the loan details or fee amounts change, you will receive an updated Loan Estimate. Keep in mind there are only a few circumstances that allow the loan estimate to change while charging the borrower additional fees. First, if the loan amount changes or any material detail of the loan. Examples include the loan amount, term, and property. Another reason fees can change is if a fee is needed for something that was unknown at the time of application. An example of this would be the need for a second appraisal. Sometimes properties require repairs to be financed and a second appraisal is needed to prove the repairs are complete. In a case where a second appraisal is needed, the loan officer is required to disclose a second appraisal fee within three days of realizing a second appraisal is needed.
Another more complex example of why a new loan estimate would be needed is for a rate lock. In most cases, a rate lock occurs at the time of application but in some states that require more time to close a loan, the interest rate lock is sometimes completed after approval. Make sure to ask your loan officer if your interest rate is locked or floating. If the rate is floating, what are their policies if the interest rate increases?
If you have received a loan estimate and would like a professional to review the details with you, feel free to call our office at (518) 324-5544. We will schedule a time to sit down and review your estimate to make sure you fully understand the loan you have applied for. No matter what financial institution you are working with now, we are always happy to help.
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