Understanding Your Loan Estimate
The Loan Estimate is arguably the most important single document to understand in any mortgage transaction because it outlines the financial terms of the transaction. The Loan Estimate was created by the Consumer Financial Protection Bureau (CFPB) and became required on all mortgage transactions in 2015. The CFPB provides an intuitive and interactive analysis of the Loan Estimate, you can check it out here.
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We also have a few helpful notes of our own to add. Click here for the key takeaways. If you have further questions about the Loan Estimate, feel free to speak with one of our Loan Originators.
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These are lender fees. As the CFPB says in the link above, the names given to the various fees do not matter. The total amount charged in Section A is what is of concern.
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While these fees are not lender fees, the CFPB is right in indicating that you should compare them between lenders. If Lender A charges $80 for a credit report and Lender B only charges $50, you would save $30 by going with Lender B. The names of the fees again do not matter, just the total, but with two common exceptions: the Appraisal Fee and any fees related to the property's Home Owner's Associaton (HOA).
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These two fees are required to be estimated by the lender, and estimates can vary by lender. Any HOA fees are up to the HOA itself. A lot goes into the determination of the appraisal fee, for further information on this feel free to speak with one of our Loan Originators.
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Purchase Considerations
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While this section is titled "services you can shop for", this only means the lender must allow you the right to choose a provider. Yet on a home purchase, the purchase contract will often stipulate that the seller will choose the title company. If you want to shop for title company services on your purchase, you will want to make sure to discuss this with the seller before signing the purchase agreement.
Refinance Considerations
The lender or broker will often pick a title company to work with unless the borrower makes their own selection. At Twilight Home Loans, we approach it this way as well for a couple of reasons:
1) To prevent delays to closing, you want a title company assigned to your file as soon as possible.
2) We have established title company relationships that prioritize us and our borrowers. They provide us and our clients with very competitive pricing and excellent service.
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That said, we are happy to work with any title company. If you would like to shop for a title company, we would just encourage you to make a selection as early in the process as possible.
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If you do not want to shop for the title, you may want to compare Section C between lenders as you shop: If Lender A selects a title company that charges $1000 and Lender B selects a title company that charges $1200, you would save $200 by going with Lender A. Keep in mind that Section C is being estimated and may not reflect any "true" cost difference between lenders.
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Generally composed of taxes and recording fees, which are not determined by the lender. These items are required to be estimated by the lender, and estimates can vary between lenders.
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Any property taxes or homeowner's insurance bills that become due within 45 days of closing may be collected at closing, and it is the lender's responsibility to estimate these items. Estimates can vary between lenders, but your property taxes are ultimately determined by the county while your homeowner's insurance is determined by your selected provider.
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Daily interest has two relevant numbers: the amount per day and the number of days collected.
The Amount Per Day
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This is affected by the loan amount and the interest rate. If you borrow less, or at a lower interest rate, you pay less daily interest (the same way you would pay less annual interest).
The Number of Days Collected
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This is affected only by the day the loan closes. The daily interest line item exists to ensure that the new lender is paid for every single day they lend on a loan, not a day more, not a day less. One of our Loan Originators would be happy to explore this further if you have any questions.
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This section generally just includes escrowed property taxes and homeowner's insurance, but could also include mortgage insurance and/or flood insurance. These items are required to be estimated by the lender, and estimates can vary by lender.
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On a purchase, this section generally just includes Owner's Title Insurance, an optional fee. Despite it being optional, it is required to be estimated by the lender, and estimates can vary by lender. On a refinance, this section is generally empty.
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In Section J there is a line titled "Lender Credits". You will want to make sure to take any credit into consideration when comparing Loan Estimates.
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Key Takeaways for Comparing Loan Estimates Between Lenders
-There are a lot of items the lender is required to estimate, and it can add confusion when comparing Loan Estimates
-The biggest factors lenders and brokers control in making their offer are the Section A fees, most Section B fees, any Lender Credit, and the interest rate offered
-If you are refinancing and do not want to shop for a title insurance provider, factoring Section C into your comparison could be worthwhile