What exactly is a Loan Estimate? A Loan Estimate is a close, complete likeness to what the expenses, payments, and closing costs will look like upon and if a mortgage loan closes. It sets out the terms and conditions in three business days after a submitted application by the borrower with the lender for a mortgage loan. The Mortgage Loan Estimate is also known as the Mortgage Loan Scenario.
There are two main reasons to obtain a mortgage estimates. One reason is to determine the amount of money that one can borrow to purchase a home, and the other reason is to determine the amount that one can borrow to refinance mortgage loans. A Loan Estimate will tell a borrower whether they qualify for a loan or not, and it will also tell the lender if the borrower will be able to pay the loan off in a specific amount of time. The Loan Estimate is prepared after taking into account a borrower's income, employment history, credit history, down payment information, and the structure of the loan.
The mortgage rates and closing costs that are presented in the Loan Estimate are a product of many factors, including; lender, borrower, economy, credit history, and many other factors. The mortgage rate that is given in a Loan Estimate is higher than what the lender would charge based on the data that is entered into their systems at that particular time. Because of this factor, the borrower may be charged higher closing costs.
When comparing loans at the time of purchasing a home, the buyer needs to know and understand the difference between a Mortgage Loan Estimate and a Mortgage Rate Guarantee. A mortgage rate guarantee is what is usually offered when comparing loans, but it is not the same thing as an estimate on the mortgage cost. A mortgage loan is the actual cash value of the mortgage that the lender will receive after closing, while a mortgage rate guarantee is an estimate of what the mortgage rate will be at the time of closing. Lenders may offer both, but a mortgage lender is not required to accept either one.
A mortgage loan is a contract between the lender and the borrower, where the lender must provide the home owner with a fully amortized lump sum of money with which to buy the home. The amount of the loan, which is also called the down payment, is agreed upon in advance. The mortgage loan is typically for a fixed term, which can range from fifteen years to thirty years. Payment terms may also be negotiated between the buyer and the lender, although these terms are not limited. In addition, there are usually no restrictions on the size of the down payment, although pre-payment penalties may apply.
For the buyer, getting a Loan Estimate enables him or her to more accurately calculate his or her loan terms. Although he or she must pay close attention to the information provided by the seller, he or she must understand that the estimate is not intended to be binding on the seller. A Mortgage Broker or a Certified Loan Officer can provide the buyer with the estimated mortgage rate for a detailed explanation of the details of the estimate.
One important point to remember when comparing loan offers is that the estimate does not include any costs associated with prepayment. For example, the buyer of a three-month fixed rate mortgage loans will probably have to pay a reasonable prepayment penalty before the loan can be closed. Because of this prepayment penalty, a buyer may find himself paying much more interest over the life of the loan than he initially thought. The prepayment penalty usually applies to mortgage loans that are paid off completely, however. In cases where the borrower fails to meet the monthly payments required for the balloon payment, the lender may impose a larger prepayment penalty.
Finally, when comparing loan estimates provided by different lenders, it is wise to be aware that closing fees and appraisal fees can significantly increase the amount of the final loan estimate. These fees are imposed to close the mortgage loan at the end of the term. Although they are listed in the loan estimate, they are not itemized separately. Therefore, it is imperative for buyers to closely compare all fees associated with a mortgage.