Loan Estimate Explained in Plain English

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Loan Estimate Explained in Plain English

This new form integrates and replaces the existing RESPA GFE and the initial TILA disclosure for these transactions.

  • The LE must contain a good faith estimate of credit costs and transaction terms.
  • The LE must be in writing.
  • The creditor must deliver the LE or place it in the mail no later than the third business day after receiving the application.
  • Creditors generally may not issue revisions to the LE because they later discover technical errors, miscalculations, or underestimations of charges. Creditors can issue a revised LE only in certain situations such as when changed circumstances result in increased charges.
  • If a mortgage broker receives a consumer’s application, either the creditor or the mortgage broker may provide the LE.

Page 1 of the Loan Estimate

loan-estimate_Page_1

Page 1 of the Loan Estimate includes general information, a Loan Terms table with descriptions of applicable information about the loan, a Projected Payments table, a Costs at Closing table, and a link for consumers to obtain more information about loans secured by real property at a website maintained by the Bureau.

Check spelling of the Name

Ask the lender to correct any inaccurate contact information. Even minor misspellings can cause big problems later.

Check loan term, Purpose, and Loan

Make sure the information matches what you discussed with your lender.

Is your Rate Locked 

Some lenders may lock your rate as part of issuing the Loan Estimate, but some may not.

Quick Quiz

Fill in the Blank:
Page 1 of the Loan includes general information, a Loan Terms table with descriptions of applicable information about the .

Check that the loan amount is what you are expecting

If you are purchasing a new home, check to see that the loan amount plus your down payment equals the sale price of the home. If it doesn’t, ask the lender why.

Is your interest rate fixed or adjustable?

If the right-hand column says “YES,” your interest rate is adjustable and can change after closing. Make sure your Loan Estimate shows the type of interest rate you were expecting.

If you have an adjustable rate, your Loan Estimate form will have additional information in the Projected Payments table on page 1 and in two additional tables at the bottom of page 2. See a sample Loan Estimate for an adjustable-rate loan.

Learn more about the difference between fixed and adjustable rates

Does your loan have a prepayment penalty.

This feature is risky. If your loan includes a prepayment penalty, learn more and ask your lender about your other options.

Learn more about prepayment penalties

Does your loan have a balloon payment. 

This feature is risky. If your loan includes a balloon payment, ask your lender about your other options.

Learn more about balloon payments

Do you have items in Estimated taxes, Insurance & Assessments that are not escrowed?

If so, you will have to pay these costs directly, often in large lump sum payments. Are you comfortable spending this additional amount on housing? Do you know how often you will need to make payments for these costs?

Learn more about escrow

Do you have enough cash on hand to pay your Estimated Cash to Close?

This is the amount you will have to pay at closing, in addition to any money you have already paid. This payment is usually made by cashier’s check or wire transfer. You will need to provide your lender with proof of the source of these funds.

Quick Quiz

Fill in the Blank:
Make sure your Loan Estimate shows the type of rate you were expecting.

Page 2 of the Loan Estimateloan-estimate_Page_2

 Four main categories of charges are disclosed on page 2 of the Loan Estimate:

  • A good-faith itemization of the Loan Costs and Other Costs associated with the loan.
  • A Calculating Cash to Close table to show the consumer how the amount of cash needed at closing is calculated.
  • For transactions with adjustable monthly payments, an Adjustable Payment (AP) Table with relevant information about how the monthly payments will change.
  • For transactions with adjustable interest rates, an Adjustable Interest Rate (AIR) Table with relevant information about how the interest rate will change.

Compare the origination Charges to loan estimates form other lenders.

The best way to tell if you have a competitive loan offer is to compare it to Loan Estimates from other lenders. Origination charges are upfront fees charged by your lender, and are an important part of the cost of your loan. When comparing Loan Estimates, make sure to compare the origination charges.

Depending on the lender, origination charges may be more or less itemized. Common origination charges include application fees, origination fees, underwriting fees, processing fees, verification fees, and rate-lock fees. It’s the total that matters.

Quick Quiz

Fill in the Blank:
Origination charges are fees charged by your lender, and are an important part of the cost of your .

Does your loan include points?

If there is an amount listed on this line, it means that you are paying points to the lender to reduce your interest rate. Did you discuss this choice with the lender? A similar loan may also be available without points, if you prefer. Ask the lender what other options may be available to you, and how the other options would impact your interest rate and the total cost of your loan.

Learn more about points and how they work

Compare the Services you Cannot Shop for to Loan Estimates form other lenders.

The services and service providers in this section are required and chosen by the lender. Because you can’t shop separately for lower prices from other providers, compare the overall cost of the items in this section to the Loan Estimates from other lenders.

Some fees in this section may depend on the kind of loan you have chosen. For example, if you have an FHA, VA, or USDA loan, the upfront mortgage insurance premium or funding fee will appear in this section. These fees are usually set by the government program and not the lender. If you have a conventional loan withprivate mortgage insurance (PMI), any upfront mortgage insurance premium would typically be listed in this section. PMI premiums are set by the private mortgage insurance company, which is usually chosen by your lender.

Review the services you can shop and shop for these services

The services in this section are required by the lender, but you can save money by shopping for these services separately.  Along with the Loan Estimate, the lender should provide you with a list of approved providers for each of these services. You can choose one of the providers on the list. You can also look for other providers, but check with your lender about any provider not on the list.

Learn more about how to shop for these services

Is the home owner’s insurance premium accurate?

The home owner’s insurance premium is set by the homeowner’s insurance company, not by the lender. You get to choose your homeowner’s insurance company. Comparison shop to find the insurance policy you want and to learn if the amount the lender estimated is accurate for your specific situation. Usually you’ll pay the first 6 to 12 months of homeowner’s insurance premiums at or before closing. Homeowner’s insurance is also sometimes referred to as “hazard insurance.”

Learn more about how to shop for homeowner’s insurance

Quick Quiz

Fill in the Blank:
The home owner’s premium is set by the homeowner’s insurance company, not by the .

Are the property taxes accurate

Property taxes are set by your local or state government, not by the lender. To avoid surprises later, check now to find out whether the lender has estimated these costs accurately. Contact your local tax authority or ask your real estate agent for more information about property taxes in your area.

Does your loan include lender credits?

If there is an amount listed on this line, it means that the lender is giving you a rebate to offset your closing costs. You may be paying a higher interest rate in exchange for this rebate. Did you discuss this choice with the lender? A similar loan may be available with a lower interest rate and without lender credits, if you prefer. Ask the lender what other options may be available to you, and how the other options would impact your interest rate and the total cost of your loan.

Learn more about lender credits and how they work

Is the Estimated Cash to Close what you were expecting?

Your Estimated Cash to Close is the estimated amount of money you will have to bring to closing. This section shows how the Estimated Cash to Close was calculated. Your Estimated Cash to Close includes your down payment and closing costs, minus any deposit you have already paid to the seller, any amount the seller has agreed to pay toward your closing costs (seller credits), and other adjustments.

If the Estimated Cash to Close isn’t what you were expecting, ask the lender to explain why. You will typically need a cashier’s check or wire transfer for this amount at closing. The lender you choose will also need to document the source of the funds you bring to closing. Ask the lender about what documents you will need.

Quick Quiz

Fill in the Blank:
Your Cash to Close is the estimated amount of money you will have to bring to .

Page 3 of the Loan Estimate

loan-estimate_Page_3

Page 3 of the Loan Estimate contains Contact information, a Comparisons table, an Other Considerations table, and, if desired, a Signature Statement for the consumer to sign to acknowledge receipt.

Is the information about the loan officer what you were expecting?

Most loan officers are required to be licensed or registered with the Nationwide Mortgage Licensing System & Registry (NMLS).  You can look up the loan officer by name or NMLS ID number in the NMLS database. In most cases, it will tell you whether the loan officer is authorized to operate in your state and whether there are any disciplinary actions on their record.

It’s important to make your mortgage payments on time and in full, every month, to avoid fees and improve your credit record. However, it’s good to know in advance how much the fee will be if your payment is late.

Quick Quiz

Fill in the Blank:
Page 3 of the Loan Estimate  Contact information, a Comparisons , an Other Considerations table, and, if desired, a Signature Statement for the consumer to sign to acknowledge .

Delivery of the Loan Estimate

The creditor is generally required to provide the LE within three business days of the receipt of the consumer’s loan application. For purposes of providing the LE, or any revised LE, a business day is a day on which the creditor’s offices are open to the public for carrying out substantially all of its business functions.

The creditor must arrange for delivery as follows:

  • By providing it to the consumer in person.
  • By mailing or emailing it.
  • Electronically delivery.
NOTE: If mailed or emailed, the consumer is considered to have received the LE three business days after it is delivered or placed in the mail unless the consumer confirms receipt before that period elapses.
 

Application consists of the submission of the following six pieces of information from a consumer:

  • Name.
  • Income.
  • Social Security Number to obtain a credit report.
  • Property address.
  • An estimate of the value of the property.
  • Mortgage loan amount sought.
Quick Quiz

Fill in the Blank:
If mailed or  , the consumer is considered to have received the LE three business days after it is .

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