You’re one step closer to getting into your dream home and your lender has just sent you a Loan Estimate. As soon as you open up the loan estimate, you’re immediately overwhelmed looking at numbers that you might not understand.
Before you panic, just keep in mind that the loan estimate was designed to protect the borrower and ensure that the borrower can more easily understand important detail about the loan they have requested. Thanks to TRID a lender must supply the borrower with the Loan Estimate within three business days of receiving their application.
Since the form uses a well-designed layout and clear language that is standardized across all lenders, it should allow the borrower to more easily compare loan products from lender to lender to make the best decision.
Here are the top 4 things to understand on your loan estimate:
4. Is your interest rate fixed or adjustable?
If you check out page 1 of your loan estimate and see that the right hand column next to interest rate says “YES” then that means that your rate is adjustable and is subject to change after closing. If it is marked “NO” it is fixed. Make sure this is what you were expecting and fully understand the different and implications of loans with fixed vs. adjustable interest rates.
3. Does your loan include points?
If you have something listed here under loan costs (and it will generally have the term [points] dictated) then it means that you are paying points to the lender to essentially reduce your interest rate. Make sure this is something that you fully understand and have discussed with your lender. If this concerns you, ask for other options without points and see how they would impact the cost of your loan.
2. Is the estimated cash that you need to bring to closing what you expected and discussed?
This estimate is meant to provide you with a good idea of how much cash you must bring to closing and also provide a breakdown of how that estimate is calculated. If this is different than what you’ve discussed with your lender, give them a call and ask them to explain. Also ensure to ask them what form you need to bring your cash in (ex: wire transfer or cashier’s check) and if you need to bring any other supporting documents.
1. Pay close attention to the Comparisons section when comparing Loan Estimates
This is a section that truly helps the borrower to shop programs from different lenders. Request loan estimates for the same program from different lenders and use this section to make comparisons of costs and rate of the loan. Make sure you’re comparing apples to apples. This is the most important section when it comes to making sure the borrower has the power to choose the best loan program and lender for them.