A Loan Estimate (LE) is a form that lists basic information about the terms of a mortgage loan for which you’ve applied.
The idea behind the Loan Estimate (like the Good Faith Estimate before it) is to get critical information about the loan into the hands of the borrower as early as possible so that you as a borrower can review it in a leisurely and non-pressured environment. The new Loan Estimate is a three-page form that includes a lenders estimated costs you’d pay for the home loan. The LE provides you with basic information about the loan including the Annual Percentage Rate (APR), which will help you:
- Compare offers
- Understand the real cost of the loan
- Make an informed decision about your loan choice
The first page of the Loan Estimate, also answers are two important questions:
- Can the loan amount, interest rate and monthly principal and interest increase after closing?
- Does the loan feature either a prepayment penalty or a balloon payment?
The lender or the mortgage broker must provide you with a LE within three business days of receiving your application or other required information. An application is made when the lender receives six pieces of information from the consumer. Those six items are the consumer’s name, social security number, income, address of the property, estimated value of the property and the loan amount sought. You can’t be charged any fees until you get the Loan Estimate and indicate that you plan to take out the home loan. But you can be charged a credit report fee.
If the lender denies your application within three business days, it does not have to provide you with a Loan Estimate. Within 30 days, your lender has to tell you:
- Why your application was denied, or
- That you have 60 days to request the reason why it was denied
Fees and Charges
The fees included within a Loan Estimate fall into six basic categories:
- Loan fees
- Fees to be paid in advance
- Reserves
- Title charges
- Government charges
- Additional charges
The following is a list of the typical charges. Each charge starts with a number – the same number as the number of the charge on a Closing Disclosure (CD). This makes it easier to compare the charges a loan applicant receives on the Loan Estimate to the Closing Disclosure. The front page of the Closing Disclosure mirrors the front page of the Loan Estimate and asks the same questions as set forth in the LE. In this way, borrowers can hold the Closing Disclosure side-by-side against the Loan Estimate and confirm that the answers to the questions raised in the Loan Estimate remain the same as in the Closing Disclosure.
The Closing Disclosure also includes disclosures of whether or not the loan can be assumed, whether the lender can demand the early repayment of the loan, when the lender can charge a late fee and in what amount, whether the loan includes a negative amortization feature and whether the lender will accept partial payments. The rest of the information on the Closing Disclosure is similar to the HUD-1 but is presented in an easier to read format. In this regard, line items are gone and instead fees are alphabetized. Itemization is back and roll-up lines on the old HUD-1 are gone.
Closing Disclosure Must be Received Three Business Days in Advance of Closing The most important change in the CFPB rules is that the Closing Disclosure must be received by the borrower at least three business days in advance of the closing. The closing is not permitted to occur until the borrower has had the Disclosure for the requisite period of days. This requirement may, unfortunately, cause some closings to be delayed.
If the Closing Disclosure is significantly changed after it has been issued, the CD must be reissued. A significant change has been defined as:
- changes to the loan product;
- the addition of a prepayment penalty; or
- changes to the loan’s APR of more than 1/8 of one percent or by more than 1/4 of one percent for loans with irregular payments.
Tips:
Make sure what you get is really a LE. Under the new rules, the lender has to provide a LE within three days of receiving a loan application. Some lenders get around this requirement by handing out “work sheets” instead of LEs.
The difference? Fee estimates on a work sheet don’t have to be accurate. By contrast, a LE has accuracy requirements and the final closing costs may be different; however the difference can only be 10% of the third party fees. Once a Loan Estimate is issued the lender/broker cannot change the fees in the origination box.
A fee underestimate — even if it’s an honest error — could cost a lender thousands of dollars.
Certain charges, known as zero tolerance charges may not exceed the Loan Estimate. The zero tolerance charges include:
- fees paid to the lender, mortgage broker or an affiliate of either
- transfer taxes
- fees paid to an unaffiliated third party if the lender does not permit the borrower to shop for the service.
Charges Which Can Increase Up To 10% At Settlement
The Loan Estimate is an estimate based on available information at the time of application. Sometimes, service costs change. For this reason, the LE may vary from your settlement statement by as much as 10% per item.
Only certain fees are included in this allowance, however. They include government recording charges, and title services fees and other required service for which you are allowed to shop and for which you chose a lender-approved service provider.
Mortgage applicants waive their right to the ten percent cap if they shop with non-lender-approved service provider. Note that lender is not responsible by law for mis-estimating the fees of a service provider with which is has no working relationship.
Use the LE as a shopping tool. Making the LE accurate was a means to an end. The regulators’ real goal was to encourage consumers to comparison-shop. The final page of the three-page LE has a “shopping cart” that encourages borrowers to “compare LEs from different loan originators.”
We encourage our clients to shop, whether it’s something significant, like title insurance, or perhaps something perhaps minor, like pest inspectors.
Estimated Cash to Close included. The old GFE failed to estimate the size of the check that the borrower would need to bring to closing — the “cash to close”. The LE adds the cash to close, a fundamental piece of information if you’re a borrower.
Some lenders provide this estimate in a supplemental work sheet. In this case, a work sheet is a good thing — so long as it’s offered in addition to, and not in place of, the LE.
You don’t have to take the mortgage loan even if you receive a LE. The lender also doesn’t have to give you the loan even if it provides a LE.
What Types of Loans are Excluded From the Loan Estimate Requirement? The Loan Estimate has to be provided in almost all transactions where a borrower is obtaining a mortgage. However, there are some notable exceptions, including:
- mortgages on commercial property
- home equity loans
- reverse mortgages
- mortgages secured by an unattached mobile home
- mortgages originated by lenders of five or fewer mortgages in one year
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 New Albany 43054 Pickerington Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235
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