When you apply for a mortgage, you'll receive a loan estimate. This gives information on your potential loan in a simple and straightforward way. It's important you review your estimate carefully so you understand all of the terms of a potential home loan. It will help you pick a lender with the best overall terms.
A loan estimate provides details about your potential mortgage. This includes your monthly payments, estimated closing costs, taxes, and insurance. It must also highlight potential changes that could affect your mortgage rates or payments in the future. And it calls attention to important aspects of your loan, such as prepayment penalties.
Each loan estimate form is three pages long and follows the same format. That way a borrower can easily compare loan costs. It's not a pre-approval, and lenders can't require you to provide proof of income to get a loan estimate.
When you submit a loan application, lenders have three days to give you a mortgage loan estimate. You will need to give the lender some details, including:
You're permitted to provide more information, although mortgage lenders can't require it. The more details you provide about your financial situation -- and the type of mortgage you're interested in -- the more accurate your estimate will be.
Loan estimates are typically divided into different sections. Here's how to read each one.
The document begins with the date it was issued, the applicants, the property address, the sale price, and the type of loan as well as the purpose. Watch out for:
This details the loan amount, interest rate, monthly payment, and whether the loan has a prepayment penalty or balloon payment. Focus on:
This section breaks down your total monthly payment, including:
The form breaks out projected payments during the first few years and the remainder of your loan. Watch out for changes. Ideally, costs will remain consistent over time. If you pay private mortgage insurance, your payment may go down when you've paid enough of your loan to drop it.
You must pay fees to close on a loan. This section will detail the total amount of fees; as well as the full amount of money you must pay to close on your loan. Pay attention to:
The next page of your form goes into greater detail about closing costs. You should see a breakdown of all the charges you'll have to pay to close. The form will also explain how the total amount of cash to bring to closing was calculated. The loan estimate breaks closing costs down into:
Watch to make sure that the fees are reasonable for each of the services you can't shop for. And see if the down payment amount is correct and the amount is within your budget.
If you want to quickly compare borrowing costs, this section provides the details you need to shop for an affordable lender. This includes:
When you review your loan estimate, the most important things to look for include:
A loan estimate is a three-page form mortgage lenders must provide after you apply for a home loan. It makes it easy to understand the terms of a potential loan and compare loan offers. It provides details about the type of loan, your monthly payments, whether those payments can change, and your closing costs.
When you receive a loan estimate, focus on the total costs of borrowing. Consider whether monthly payments are affordable and whether they can change over time. You should also look at total interest over time so you can understand the cost of borrowing.
To get a loan estimate, apply for a mortgage and provide your personal information, income details, and Social Security number so the lender can perform a credit check. Include information about the property you want to buy and your desired loan amount.
Mortgage lenders can't require proof of income before they provide an estimate. They must give you this form within three days of your application.
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