Which set of items appears on a loan estimate? The loan estimate contains information such as your estimated interest rate, monthly payment, closing costs, and more. Loan Estimate has only been available for a few years. Previously, you may have received two documents from your lender, the good faith estimates and the truth-in-lending statement.
What is a loan estimate?
A Loan Estimate is a three-page document that you will receive after applying for a mortgage. The Loan Estimate provides important information about the loan you have requested. Within three business days of receiving your application, the lender must provide you with a Loan Estimate.
The form includes vital information such as the estimated interest rate, monthly payment, and total loan closing costs. The Loan Estimate also informs you of the estimated costs of taxes and insurance, as well as how the interest rate and payments may change in the future.
Furthermore, the form indicates whether the loan has any special features that you should be aware of, such as 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 is mentioned in the loan product description. The form employs simple language and design to assist you in better understanding the terms of the mortgage loan you’ve applied for. Every lender must use the same standard Loan Estimate form. This makes it easier for you to compare mortgage loans and select the best one for you.
The lender has not yet approved or denied your loan application when you receive a Loan Estimate. The Loan Estimate shows you the loan terms that the lender expects to offer you if you decide to proceed. If you decide to proceed, the lender will request additional financial information from you.
If you apply for a reverse mortgage, you will not receive a Loan Estimate. Instead of a Loan Estimate, you will receive two forms for those loans: a Good Faith Estimate (GFE) and an initial Truth-in-Lending disclosure. You will not receive a GFE or a Loan Estimate if you apply for a HELOC, a manufactured housing loan that is not secured by real estate, or a loan through certain types of homebuyer assistance programmes, but you should receive a Truth-in-Lending disclosure.
Loan Estimate Form Format
The loan estimate is three pages long and contains detailed information about the mortgage terms, closing costs, and loan programme features that each lender offers. The ten most important details from each page of the LE are listed below.
Page 1
The first page contains high-level information such as your
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Amount of the loan
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The interest rate
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Monthly principal and interest projections
It also includes a breakdown of your projected payments over the life of your loan, as well as the closing costs and estimated cash to close.
On this page, you should pay close attention to whether the amounts stated are subject to change after the transaction is completed. You should also check to see if there are any penalties for paying off the loan early.
Page two
The second page outlines the costs associated with obtaining the loan, as well as any other fees you’ll be expected to pay at closing. Among them are the following:
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Fees for underwriting
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Fee for appraisal
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Fee for credit report
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Fee for pest inspection
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Fees for title
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Premiums for mortgage insurance
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Taxation on real estate
These fees are aggregated into a single figure known as “Estimated Cash to Close,” which is the estimated amount you will need to pay when the loan is closed.
Page 3
The third and final page of your loan estimate includes the following information:
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Your financial institution
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When examining other estimates, use comparison rates.
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Other critical information includes late payment and refinancing policies.
Examine this section thoroughly to ensure that you understand your responsibilities as well as your options for selling the property or possibly refinancing the loan in the future.
1. Save this loan estimate to compare it to closing disclosure
These words are italicised on the first page of your loan estimate, in the upper right-hand corner. They are intended to serve as a reminder to you to compare the final fees disclosed on your closing disclosure to your initial loan estimate to ensure that the lender honoured their quote.
2. Date issued
After submitting a loan application, you must receive a loan estimate within three business days. Because mortgage rates fluctuate on a daily basis, you should gather your entire rate quotes on the same day to make apples-to-apples comparisons.
3. Loan Term
The higher the interest rate, the longer the term. Be wary of low-interest quotes that turn out to be for shorter-term loans, A 15-year fixed interest rate may be lower than a 30-year fixed rate, but the payment will be much higher over the shorter term.
4. Product
Fixed-rate and adjustable-rate mortgages are the two most common loan types (ARMs). Some lenders quote ARMs because they provide a lower initial fixed rate for a limited time. Make certain that you are receiving rate quotes for the same product.
5. Type of loan
Before issuing a loan estimate, lenders should discuss what type of loan you qualify for. Conventional loans are popular if you have good credit and a steady income, whereas government-backed loans, such as the Federal Housing Administration (FHA), allow for lower credit scores and more flexible lending guidelines. When comparing loan estimates from different lenders, the product should be the same.
6. Loan Conditions
This section of the loan estimate will give you your first glimpse of one of the most important aspects of your mortgage loan — your interest rate. The principal and interest payments are separated, but the “Projected Payments” section includes property taxes and insurance in the total PITI payment.
7. Closing costs
This section provides an overview of the total closing costs you’ll have to pay, which typically range from 2% to 6% of your loan amount. Wait until you’ve reviewed the more detailed breakdown of costs on Page 2 of the loan estimate before deciding which lender is offering you the best deal. If your lender is providing you with “lender credit,” it will show up here. With a lender credit, a lender may slightly raise your interest rate and pay your closing costs on your behalf.
8. Loan fees
When comparing loans, pay close attention to Sections A and B on Page 2 of the loan estimate. Origination fees and “Services you cannot shop for” must be accurately disclosed; lenders must honor these fees or, in most cases, pay the difference. If you’re paying extra for a lower rate, you may also see mortgage points in this section.
9. Cash to close is being calculated
This is where you’ll find the entire itemized math for the money you’ll need to close. However, be wary of focusing solely on the lender fees: The “Other Costs” sections detail tax and government fees, prepaid interest, and your initial escrow payment, which will be the same regardless of which lender you select.
10. Annual Percentage Rate Comparison (APR)
Borrowers can skip the itemized costs and instead look at the APR to find the best lender offer. Your mortgage APR is a calculation of the total costs of obtaining a mortgage. However, fees such as escrow and mortgage insurance may cause the mortgage APR to be higher or lower. Examine the loan terms in No. 6 above and the itemized fees in No. 8 to ensure you’re comparing like-for-like costs.
Other Considerations
This section provides you with six additional details about the loan for which you have applied:
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Estimated loan amount and other considerations
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The lender may request an appraisal to determine the value of the home. You must pay for the appraisal, and you will receive a copy of it.
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Can someone else take over your loan if you sell or transfer the home to them instead of getting their own? The answer is usually no, but some government-guaranteed mortgages can be assumed.
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You must obtain homeowners insurance, and you may select the company as long as the lender approves of it. If you need assistance, consult our homeowners insurance for beginners guide.
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When will you have to pay a late fee if your monthly mortgage payment is late, and how much will the fee be?
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Don’t expect to be able to refinance this loan later because your finances and the market may not allow it.
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The lender with whom you applied intends to service your loan, which means they will collect your monthly payments, manage your escrow account if you have one, and send you monthly statements. Alternatively, they may intend to have another company service your loan after it has closed.
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The loan estimate was created by the Consumer Financial Protection Bureau (CFPB) to help you understand any mortgage you apply for, whether you’re buying a home or refinancing one. Because any lender who wants your business is required to provide you with a loan estimate, you can easily compare offers from different lenders and get a better deal by using this form.
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You can also ensure that you are not being overcharged for any services and that you are aware of all of the loan’s costs and features. This crucial form should be thoroughly reviewed. Inquire with your lender about anything you don’t understand.
In short
The Consumer Financial Protection Bureau developed the loan estimate form in the aftermath of the 2008 mortgage crisis. The loan estimate (or LE for short) replaced the Good Faith Estimate and Truth in lending forms that had been used for decades before after collaborating with a communications firm and compiling hundreds of pages of research.
Necessary information for receiving loan
The Consumer Financial Protection Bureau (CFPB) implemented a rule requiring all lenders to provide you with a loan estimate within three days of completing a loan application. The three-day rule is mandatory, and lenders who fail to comply may face regulatory action and fines. The following information is considered by the CFPB to be “loan application” information that triggers the LE requirement:
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Your name
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Social Security number
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The location of the house you’re financing
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The market value of the property you’re financing.
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The loan amount you’re looking for
Before providing you with a Loan Estimate, your loan officer cannot require you to provide documents verifying this information.
You have the option of providing more information. The more information you can provide the loan officer about your financial situation, such as debts and nonwage income sources, the more accurate your Loan Estimate is likely to be. If you tell the loan officer what type of loan you want, your Loan Estimate will be more useful to you. You should inform your loan officer if you are interested in:
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An interest rate that is either fixed or variable
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A specific amount for a down payment
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A specific type of loan (conventional, FHA, VA, USDA, etc.)
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A particular kind of mortgage insurance premium (monthly, upfront, or a combination of both)
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Paying points in advance to reduce your interest rate
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In exchange for a higher interest rate, you will receive lender credits to be used toward closing costs.
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Including homeowner’s insurance and/or property taxes in your monthly mortgage payment rather than paying these separately
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Having your lender lock in your interest rate, and for how long
However, providing additional information, such as your preferred loan type (for example, conventional or FHA loan) and down payment amount, can result in a more accurate loan estimate.
Remember that a loan estimate is not the same as a closing disclosure. If you do not agree with the terms on offer, do not proceed. However, if you like the terms cited in a specific loan estimate and want to move forward, you must provide your loan officer with your “intent to proceed,” or agreement to move forward with the loan application, as soon as possible.
Lenders are only required to honour loan estimate terms for 10 business days. Following your expression of intent to proceed, your lender will request additional information about your finances (such as your income) and will provide you with a closing disclosure that includes your finalised loan costs.
Loan estimate binding
A loan estimate is technically only binding on the date it is issued. Interest rates, like stock prices, fluctuate on a daily basis, so if you don’t lock in your mortgage rate with the lender the same day you receive your loan estimate, the interest rate, terms, and closing costs may change.
There are some scenarios that may result in a difference between your initial and final loan estimates after your loan has been locked. The Consumer Financial Protection Bureau (CFPB) provides common examples of situations in which you may be subject to a “change of circumstance” adjustment to the terms of your home loan:
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You make the decision to switch loan programme.
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You opt for a lower down payment.
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On a credit report pulled prior to closing, your credit score drops.
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You disclosed income that could not be documented or used to qualify for a loan.
Key points to know
Current regulations limit the amount that certain fees on your loan estimate can change after they’ve been disclosed. Lenders must adhere to three “tolerance” levels:
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Tolerance is non-existent. Lenders are not allowed to change their fees after they have been disclosed unless there is a significant change in circumstances — this includes origination fees and transfer taxes. If the fees do change, the lender is responsible for the difference.
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Tolerance of 10% If the total amount of fees disclosed in this category exceeds 10% of the initial quote, the lender must pay the difference in excess of 10%. Third-party fees such as title insurance, escrow fees and recording fees are included.
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There is no tolerance. These expenses typically include homeowners insurance and your home’s regular property taxes. If the lender chooses the title company or attorney, they are subject to the 10% tolerance rule.
Closing Disclosure
A Closing Disclosure is a five-page form that contains final information about the mortgage loan you’ve chosen. It includes the loan terms, your projected monthly payments, and the fees and other costs associated with obtaining your mortgage (closing costs).
The lender is required to provide you with the Closing Disclosure at least three business days before the loan closes. This three-day period allows you to compare your final terms and costs to those estimated in the Loan Estimate you received from the lender. The three days also allows you to ask your lender any questions you may have before the closing.
Loan Estimate vs. Closing Disclosure
The loan estimate and the closing disclosure differ significantly in one important way: the closing disclosure contains the final terms of the mortgage you’re about to take out. The format is similar to that of the loan estimate form, with the exception that the figures are no longer estimates.
The lender verifies all third-party costs such as title insurance, attorney fees, and appraisal invoices. Property tax, homeowners insurance, and prepaid interest are all prorated based on your closing date. The closing disclosure is also subject to a three-day rule: you must receive a copy at least three business days before the closing.
A loan estimate is not the same as a closing disclosure, which is a longer document that details the actual costs you’ll pay when you close on a mortgage. However, to ensure accuracy, compare the disclosure to the original loan estimate you received.
Loan estimates are only three pages long, whereas closing disclosures are five pages long. A loan estimate is intended to provide you with an estimate of the costs associated with a potential loan; in other words, it is subject to change. A closing disclosure contains the final details of your chosen loan, such as the amount and interest rate, monthly payment, closing costs, and amounts of down payment, prepaid insurance, interest, and taxes.
Any credits you receive from the seller will be noted as well. A loan estimate requires only a few data points from your lender. However, you will not receive a closing disclosure until you have a finalized sales contract and a fully processed loan application.
Summary
A loan estimate is a form that contains information about the costs and other terms of a mortgage. Lenders send these forms to potential borrowers within three days of receiving a mortgage application and before making a decision on whether to approve or deny the loan. The form includes information about the loan amount, interest rate, monthly payment, and other costs, some of which can be negotiated separately to save money.
Frequently Asked Questions
Following are some frequently asked questions related to which set of items appears on a loan estimate.
1. What 3 items appear on a loan estimate?
The form includes vital information such as the estimated interest rate, monthly payment, and total loan closing costs. The Loan Estimate also shows you the estimated costs of taxes and insurance, as well as how the interest rate and payments may change in the future.
2. What cannot change on a loan estimate?
These costs can change by any amount if there is a “change in circumstances,” but they cannot change at all if there is no “change in circumstances”: Fees paid to a lender, mortgage broker, or a lender or mortgage broker’s affiliate for a required service.
3. Is a loan estimate binding?
A loan estimate is technically only binding on the date it is issued. Interest rates, like stock prices, fluctuate on a daily basis, so if you don’t lock in your mortgage rate with the lender the same day you receive your loan estimate, the interest rate, terms, and closing costs may change.
4. Can a loan estimate change?
Only if new or different information is discovered during the process is your lender permitted to change the costs on your Loan Estimate (such as the examples above). If you believe your lender has revised your Loan Estimate for an invalid reason, contact them and ask them to explain.
5. What happens after the loan estimate?
You will receive the Closing Disclosure after selecting a lender and completing the mortgage underwriting gantlet. It contains the same information as the Loan Estimate, but in final form. This means it includes your loan’s locked-in costs as well as the specific amount you’ll need to pay at closing.
6. Is a loan estimate an approval?
A Loan Estimate does not indicate whether or not your loan application has been approved or denied. You are not required to have a signed contract for the property for which you are receiving a Loan Estimate. Other than a reasonable fee for the lender to run a credit report, you are not required to pay an application fee.
7. What is the difference between a loan estimate and closing disclosure?
Whereas the Loan Estimate gives you an estimate of your closing costs and monthly payments, the Closing Disclosure gives you exact figures for the cost of your mortgage. It’s intended to tell you exactly how much you’ll have to pay for your loan each month.
8. Do loan estimates expire?
A Loan Estimate will include an expiration date at the top of the first page, indicating how long the estimate is valid. Loan Estimates are typically valid for 10 business days from the date they are issued.
9. Does a loan estimate need to be signed?
It includes information on the interest rate, closing costs, monthly payments, and other factors to consider before making a final decision. It’s critical to keep in mind that the loan estimate must be signed and returned to the lender before it expires, which is usually 10 days after it’s issued.
10. Is closing Disclosure final?
The Closing Disclosure is a final accounting of your loan’s interest rate and fees, mortgage closing costs, monthly mortgage payment, and total payment and finance charges. The form is sent to you at least three days before signing the mortgage documents.
Conclusion
When you apply for a mortgage, your lender is obligated to provide you with a Loan Estimate: a standardized document that contains critical information about the mortgage for which you are seeking. The Loan Estimate provides information such as the projected interest rate, monthly payment, and closing expenses.
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