If you are a first-time homebuyer you may be apprehensive about whether you could afford the mortgage payments or other costs associated with buying a home. Therefore, the more you know of the mortgage process the more prepared you will be to make the right decision.
One important document that you can use to ensure that you find the best mortgage loan and plan for closing costs is the Loan Estimate.
In this article let us take a look at the details of the Loan Estimate, why it is important, and what you need to look for when securing a mortgage.
Details Of The Loan Estimate
A Loan Estimate is a document of three pages that details the financial specifics of the mortgage you have applied for. Your lender will provide this within three business days after receiving your mortgage application with the details like name, income, Social Security Number, address, the value of the property you intend to purchase, and the amount of loan you require.
The Loan Estimate will contain important information of the mortgage you have applied for and will include:
- Estimated interest rate
- Monthly mortgage payment
- Closing costs
- Estimated costs of property taxes and mortgage insurance
- Any possible future changes to the interest
- Potential penalties
- An estimate of the amount of cash you need to bring to closing.
- Discount points(if any)
- Escrow Expenses
It also has a section that helps you understand the long term costs of the mortgage like:
- 5-year costs: The amount you will have paid after 5 years, including principal, loan costs, and mortgage insurance.
- APR: Amount of interest on your total mortgage amount that you will pay annually including closing costs.
- Total Interest Percentage (TIP) Tells you how much interest you will pay over the loan term. It is expressed as a percentage of your mortgage amount.
What You Need To Look For On Your Loan Estimate?
Buying a home is a large and complicated process and if you are a first-time homebuyer you will be surprised to learn that the home will cost more than only the sales price. So, when you receive your Loan Estimate the most important things that you need to focus on is the total cost of borrowing. Read it carefully to check:
- Whether the monthly payments are affordable and will they change over time.
- The amount of money you will need at closing.
- Whether there is a pre-payment penalty or a balloon payment.
- The interest rate, the total interest rate, and the APR.
Why Do You Need a Loan Estimate?
A loan estimate is an important document that can help you:
- Understand the mortgage terms and conditions. It will also give you an overall estimate of the total costs of your mortgage loan.
- Secondly, by completing the loan application with at least three different lenders you will be able to compare each loan offer separately and see which one has the lowest costs or most favorable terms.
- You could also negotiate better terms with each lender.
The Bottom Line
It is important to remember the Loan Estimate is just that-an estimate. It is not an indication that your lender has approved your loan application. It details the terms the lender is willing to offer if you decide to move forward. You are not committed to anything, but if you like the terms you must convey your “intent to proceed”. Then, the lender may request for additional information before it is sent to the underwriter to be processed and finalized.
Are you ready for a home loan? Get started with ratebeat mortgage. Give one of our loan experts a call at (877) 877 7575