Mortgage Documents 101
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After finding a house the next step is to apply for a mortgage loan. After you submit an application your mortgage lender is required to present you with a loan estimate within 3 business days of receiving your completed application. The loan estimate replaces the Good Faith Estimate (GFE) and the initial Truth in Lending statement you might have received in Prior mortgage applications. In October of 2015 this was made mandatory.
What Does a Loan Estimate Include?
So what is the loan estimate? Let’s take a closer look. The loan estimate is a standardized three-page document that provides information regarding your potential mortgage loan. This includes the loan product type, the loan amount, the loan terms and details and the projected closing costs. The loan estimate will also provide your projected monthly mortgage payment, as well as any charges for fees paid out of an escrow account like property taxes and homeowners insurance.
The figure located at the bottom of page 1 shows the estimated amount of cash you’ll need to close. The transaction, the loan estimate separates closing fees by those you can shop for and those you cannot. If your lender will not allow you to shop for a certain service like a home appraisal, it is bound to honor the figure quoted in the loan estimate for services. You can shop, for you are free to find a third-party service provider of your choosing. If you choose from the lenders list of third-party service providers, you’re quoted figures carry a 10 percent tolerance, meaning that those fees cannot increase by more than 10 percent in the aggregate.
At closing, if you select a service provider that is not on your lenders approved list, this figure can change without a tolerance limitation. Other fees quoted also carry a 10 percent tolerance for adjustment. These include recording fees and other taxes. The third page of the loan estimate enables you to compare the terms and fees of this mortgage with other potential loans. This section will show you how much interest compared with principal you will pay in the first five years of the loan.
The table also shows you your annual percentage rate or APR, as well as the total percentage of interest you’ll pay over the life of the loan. The loan estimate will provide you with other important terms of your loan, including your rights, to receive a copy of your property appraisal, whether this loan can be assumed by another person, whether you are required to purchase homeowners insurance, your lenders, policy for late payments or refinancing And whether your lender will keep or transfer your loan, you may need to confirm receipt of the loan estimate at the bottom of page 3, depending on lender requirements. Keep in mind that this does not bind you to the loan before your transaction closes. You will receive the closing disclosure which will provide you with final closing costs and loan terms. You can compare these two documents to ensure that your final figures do not exceed legal tolerance levels.
If you have questions regarding your loan estimate, you’ll find your lenders contact details on the top portion of page 3, with your loan estimate in hand you’re one step closer to your new home. You