If you’ve never bought a home before, or if it’s been a while since you’ve bought a home and want to brush up on the latest regulations, you’ll want to learn the ins and outs of your home loan estimate. Here are some tips on how to ensure you've got your bases covered when it comes to understanding your home loan.
Do You Understand Your Loan Estimate?
Purpose and Shopping for Your Mortgage
The top section of the estimate is there to inform you that you’re receiving a summary of your loan terms and your estimated summary charges. Know that you can also use the document if you decide to keep shopping around with different mortgage providers for a home loan estimate.
Your estimate should also inform you of essential dates, such as when the estimate expires. Whether your interest rates are floating or locked will also influence your estimate dates. For instance, you’ll only have a short period of time to act on floating rates. With locked interest rates, you’ll have a date by which you’ll need to close your loan in order to secure your rate.
This section of your estimate breaks down the initial total amount of your loan, interest rate, loan terms and your expected monthly payment. Know that your monthly payment includes your interest, principal and mortgage insurance, should you be required to have it, which depends on how much you put down for a down payment. Something to take note of with your payment is that it does not include homeowners insurance or property taxes, so be sure to account for those on your own.
Finally, pay attention to the section that stipulates whether your interest rates, loan payment or loan balance can increase. You should also check your home loan estimate to see if there’s a possibility of balloon payments or prepayment penalties.
Here is where you’ll be informed whether your lender will collect a percentage of your monthly homeowners insurance premium and yearly property taxes as well as your loan payment. If so, that amount will be collected in either an impound or escrow account until the expenses need to be paid.
Settlement Charge Summary
Towards the bottom of the first page is where you’ll find the sum of the expenses listed on the second page of your home loan estimate. You’ll notice one line for lender origination charges and another for the overall cost of settlement services. Know that there’s a chance these numbers can change before you decide to close on your loan.
Additional Info About Your Interest Rate and Loan Origination Charges
The next section is where you’ll see a breakdown of all of your loan origination charges and whether you receive a credit that increases your rate and adds to your origination charges. There’s also a chance your mortgage estimate includes points, which add to your charges while subtracting from your interest rate. Examples of additional closing costs you might notice on your home loan estimate include:
- Owner’s title insurance
- Lender’s title insurance
- Prepaid interest
- Recording fees
Looking at the top of page three, you’ll find which of the loan origination charges can shift to an unlimited amount, have a zero tolerance and have a limited tolerance.
If there’s anything about your estimate you don’t understand, make sure you ask your lender about it, no matter how minor you feel the question might be. It’s always best to err on the side of extreme caution when large sums of money and legally binding agreements are involved.
Take a thorough and careful look over your home loan estimate before agreeing to anything and while shopping around for additional estimates. Always trust your instincts, and don’t feel pressured to make a decision one way or the other.
Interested in learning more about the the home loan process? Let us help!