How To Read And Compare Mortgage Loan Estimates?
Unless you plan to pay for the house in cash, you will need to obtain a mortgage to finance the purchase. An important part of the process is the evaluation of the loan appraisal, which explains the mortgage offer and terms including the interest rate.
However, a credit estimate is just that: an estimate. Here’s what you need to know about credit estimates and how to compare multiple credit estimates to make sure you’re getting the best deal.
What is a Mortgage Estimate?
A credit evaluation is a three-page document that outlines your estimated mortgage costs. This form details the fees, interest rate and any other charges associated with your mortgage. Lenders must provide you with a credit assessment within three business days of receiving your application.
To get an official credit assessment, you must own the home under contract—meaning the seller of the home has accepted your offer—unless you’re refinancing an existing mortgage. Many people think they’ll be prequalified or preapproved to get a loan estimate, but without a real estate address, you won’t be able to get an official estimate, Biston said.
All lenders must use the same credit evaluation form. This makes comparing quotes easier, but you still need to know what you’re looking at. Also remember that a credit estimate is only an estimate. Fees vary between lenders, and some fees may change due to closings. The good news is that you don’t have to be an expert to understand what’s written on your credit review. You just need to know what to focus on.
How to Read and Compare Credit Estimates
Whether you’re buying a home or refinancing, a credit evaluation is an important document, so it’s critical to understand the information that’s presented.
Credit Evaluation Page 1
The first page of the credit review describes the general terms of the mortgage in three areas:
- Loan terms
- Estimated payment
- Closing costs
Each spells out the details of the loan. See section #1 given in the example above for information on:
- Loan term – the term of the mortgage (eg 30 years)
- Purpose – the purpose of the funds, e.g. B. “Purchase”
- Product – What type of mortgage is it, e.g. B. “Fixed Rate”
- Loan type – whether the mortgage is conventional, FHA, VA, or another type of loan
- Rate lock – whether the lender has locked in the rate on the mortgage and the date the lock expires
See Section 2 above for more information on:
- Loan Amount – how much you borrow and whether it can be increased
- Interest rate – the interest rate (percentage) and whether it can be increased
- Monthly Principal and Interest – the monthly mortgage payment, excluding home insurance and property taxes
- Prepayment penalty – if you add a special payment or repay in full before the end of the loan term, is there a prepayment penalty
- Balloon Payment – is a balloon payment, a large sum due at the end of the loan term
See Sections 3 and 4 above for an overview of your payments and charges.
- Payment Calculation – monthly mortgage payment breakdown including principal and interest, escrow amount and Personal Mortgage Insurance (PMI) premium (if applicable)
- Estimated Total Monthly Payments – Estimated monthly mortgage payments including principal and interest, escrow and PMI (if applicable)
- Estimated Taxes, Insurance and Assessments – Estimated homeowners insurance and property taxes and whether they are in escrow
- Estimated Closing Costs – Mortgage Closing Costs
- Estimated cash at closing – closing costs plus any other costs you pay upfront (such as an advance payment, deposit, or line of credit from the seller)
The first page also includes the applicant’s name, loan appraisal date, home address and property price.
On the first page, “you want to make sure the interest rate and loan amount match what you’ve chosen or discussed with your lender,” Santa-Donato says.
Credit Evaluation Page 2
Like the first page of the credit review, the second page has three sections:
- Credit cost
- Other fee
- Calculate cash to close
These explain all of the costs of a mortgage, including provider fees and the services you’ll need to use, such as a B. appraiser, and other vendors and services that you may shop around and possibly find a lower price on. B. Property insurance company.
As mentioned in Section 5 above, the left column breaks down the following costs and benefits:
- A: Closing Fees – Mortgage origination fees, which may include application fees and other lender fees, as well as anything you may purchase to lower your interest rate
- B: Services You Can’t Buy – A list of services needed to complete your mortgage and their costs, such as: B. Appraisals and credit checks, for which you cannot choose your own provider
- C: Services You Can Purchase – A list of services you can purchase and their costs to complete your mortgage, such as: B. Title searches and surveys, where you can choose your own provider
- D: Total Loan Cost – Sum of Parts A, B and C
For key comparison figures, see Parts A and B: Original charges and charges for services you can’t buy.
“These numbers vary by lender and affect your monthly payments and cash due,” Santa-Donato said. “Other fees and prepayment amounts, while important to your closing total, show little difference between lenders. ”
You may choose to buy from a Part C supplier if you think you can get a better deal. Note that even if you’re comparing costs to other providers, your lender may have a relationship with the providers they list in their credit evaluation, which may or may not have special partner rates attached.
Additional details shown in section 6 above are:
- E: Taxes and other government fees – the cost of registering a mortgage with the city or county and property transfer tax (if applicable)
- Q: Prepayment – anything you pay in advance, such as B. premiums for homeowners insurance or mortgage insurance or property taxes
- G: Initial Escrow Payment at Closing – Your initial homeowners insurance premium and property taxes are escrowed
- H: Miscellaneous – additional costs such as title insurance (usually required, but sometimes optional)
- I: Total Miscellaneous – Sum of Sections E, F, G and H
- J: Total Transaction Cost – Sum of Parts D and I
See the last section on page two, “Calculating Cash Before Closing” (Section 7 above), for a breakdown of all costs required at closing, including upfront payment and total closing costs (partial calculation). j). This is the estimated total amount of cash you will need to complete your mortgage.
Credit Evaluation Page 3
The final page of the loan estimate includes details such as the name of the lender and loan officer, as well as three key numbers that can help you make comparisons (see section 8 in the example above):
- How much you will pay back on the loan amount plus principal, interest and mortgage insurance (if applicable) over the first five years of the loan
- Your annual percentage rate, or APR, the combined cost over the life of the loan, expressed as an interest rate (not your rate)
- Your gross interest rate, which is the amount of interest you pay over the term, expressed as a percentage of the loan
The last page also explains other parts of the process (see section 9 above), such as: B. Appraisal and homeowners insurance requirements, acceptance (mainly whether the loan can be taken on by the next owner of the property), any Late payment penalties and how to repay your loan.