Everything You Need to Know About Your Loan Estimate

 

When shopping for a home loan, the Loan Estimate is one of the most important documents you can get throughout the mortgage process. It breaks down the details about the mortgage you’ve requested and gives you the ability to compare loan quotes from different lenders. Let’s take a few minutes to break it down even further.

 

This is a document created by the Consumer Financial Protection Bureau (CFPB) to help you compare the costs associated with different mortgage loans. Prior to 2015, this was called the “Good Faith Estimate” form. As the name of the document implies, it’s meant to be viewed as an estimate and give you figures of the cost of the home loan.

 

You’ll be able to see:

 

• Interest rate
• Projected monthly payment (with principal and interest)
• Expected closing costs (including the down payment)
• Estimated taxes, homeowner’s insurance, and assessments (escrow payments)
• Estimated mortgage insurance
• Any special features (points, etc.)

Click here for an example of what a Loan Estimate looks like.

 

You’ll receive a Loan Estimate after the application process is completed. This doesn’t mean that you’ve been approved or denied for a mortgage, it’s just showing you the terms and conditions of what a lender expects to be able to offer you, if you decide to move forward.

 

A Home Loan Specialist will provide you with a Loan Estimate once you have supplied the following information:

 

• Your name
• Your income
• The desired loan amount
• Your social security number (used to pull a credit report)
• An estimate of the value of the property
• Property address of home you’re looking to purchase or refinance

The loan estimate is based on the information provided and available to the loan officer. If you provide additional information about your debts, income sources, and down payment amount or circumstances change regarding your loan an updated Loan Estimate will be provided within 3 days of obtaining that new information.

 

Prior to providing a Loan Estimate, your Home Loan Specialist will discuss  type of home loan products available and determine which one best fits your needs. Here’s a few available options:

 

• FHA- FHA stands for the Federal Housing Administration which is a government agency created to increase homeownership across the United States all the way back in 1934. The agency itself doesn’t offer home loans but insures loan that are offered by private lenders (i.e. mortgage companies).
• Conventional- A conventional loan is a type of mortgage loan that is not insured or guaranteed by the government. Based on your down payment, the private mortgage insurance may apply.
• Jumbo- Jumbo loans are privately-backed mortgages that usually require a larger down payment, higher credit scores, and higher income levels. These are sometimes referred to as non-conforming loans as the loan amount are higher than those available through Fannie Mae/Freddie Mac or government agencies.
• Non-Traditional- If you have non-traditional credit or no credit score this is your best option since you’ll need to go through manual underwriting. You’ll have to provide alternative credit to establish credit worthiness.
• VA- You need to be an active or honorably discharged service member, or a veteran to get this type of home loan. The U.S. Department of Veterans Affairs is not a direct lender. The loan is made through a private lender (like Churchill Mortgage) and partially guaranteed by the Veterans Administration, if guidelines are met.
• USDA- A USDA loan is special type of mortgage that eligible homebuyers in rural and suburban areas can get through the USDA Loan Program. This program allows for zero down payment and is backed by the United States Department of Agriculture (USDA). It’s one of the government’s least-known mortgage assistance programs available.

Also make note of the section that shows you how much money you’ll pay over the life of the loan. This information is designed to allow you to better compare lenders.

 

For example, one lender might give you a very low interest rate so it looks like you’re getting a great deal, but they may be adding in additional costs in other areas which makes it more expensive for you over the life of the loan. Lenders are required to compute this number consistently to facilitate shopping.

 

At Churchill, our goal is to set you up for success. Yes, we provide virtually every home loan option on the market, but we also offer 100% transparency on any fees, best-in-class analytics and up-front cost comparisons.

 

This is an essential part of comparing loans and looking at multiple Loan Estimates. Knowing how to read a Loan Estimate will help you compare your home loan options up front to ensure you’re making the best decision for your short and long-term financial goals. Ready to get started?