After you have completed your mortgage loan application process, your home loan advisor will provide you with a variety of documents outlining the costs associated with your loan, such as the Loan Estimate form, which is required by law and there for your protection.
Within three business days of submitting your application, your home loan advisor must provide you with a Loan Estimate. The Loan Estimate is a three-page form with summary information of your loan terms, monthly payment, money needed at closing, details of your closing costs, and additional information about your loan.
You can use your Loan Estimate to compare rates and settlement charges from other lenders. The legal mortgage terminology used in the Loan Estimate may seem confusing, however, the following definitions should help you understand some of the most important information on this form.
- Loan Terms — This section defines the basic terms of your mortgage loan, including the initial loan amount, interest rate and initial monthly payment. This section also includes important information indicating if your interest rate can rise and if your loan has a prepayment penalty.
- Escrow Account Information— Most lenders require you to pay in advance for some items that will be due after closing. These prepaid items generally include homeowner’s insurance premiums and property taxes.
- Closing Cost Details— Your closing costs include Loan Costs and Other Costs. Loan costs are divided into three categories:
- Origination charges are fees charged by your lender for preparing and submitting your completed loan application and underwriting your loan. The Origination Charges can include an application fee, an underwriting fee and an origination charge or points.
- Services You Cannot Shop For lists the fees for those settlement services for which the lender will select the person or entity that will provide those services. These services typically include appraisals and credit reports for example.
- Services You Can Shop For lists the fees for those settlement services that you may shop for and choose the service provider. These services may include the company that issues title insurance, conducts a survey, or performs a pest inspection.
Other Costs include:
- Taxes and government fees such as recording fees and taxes and transfer taxes
- Prepaid such as homeowner’s insurance premiums for the first year of your loan term, prepaid interest and property taxes
- Initial escrow payments at closing, which generally include two months of homeowner’s insurance premiums and property taxes.
Common fees you may be charged include the following:
- Appraisal Fee — the fee paid to the professional appraiser who will assess the value of the home you want to buy.
- Credit Report Fee — the cost of getting copies of your credit report to assess your mortgage loan application.
- Title services fee and title insurance — the fee paid to a title company to search county records to make sure that the title to the property you wish to buy is clear and free of any complications like pending debts or liens on the property.
- Government recording charges — the fee required to register the property under your name and record the mortgage or deed of trust.
- Homeowners insurance — This charge is for the insurance you must buy for the property to protect your property from a loss, such as fire, floods and storm damage.
- Initial deposit for your escrow account — This represents the money that you are required to pay in advance to establish your escrow account.
Be sure to read the Loan Estimate very carefully and go over the list of fees with your home loan advisor to make sure that you have a clear understanding of what are you paying and why.
Please keep in mind that the Loan Estimate is only an estimate, and the actual charges you must pay at closing may differ. At your closing, you will receive a Closing Disclosure form that lists your actual loan costs. Compare the charges on the Closing Disclosure with the charges on the Loan Estimate to ensure that they have not dramatically changed. If they have changed, be sure to get a clear explanation of why. There are limits on the amount by which certain charges listed on the Loan Estimate can increase.
Learn more about the mortgage process or see if you qualify for a loan.