Every Home Buyer Will Get This Document (Your Loan Estimate Explained Line-By-Line)

one of the most terrifying things about getting a home and getting a mortgage is what are all the details how much do i have to pay per month what's my interest rate how much interest am i going to pay over this loan what are the total costs what are the hidden fees that might come up and when you're under contract for a home you're going to get a document in fact every single loan officer is legally required to send you a specific document called a loan estimate within three days of being under contract so it's really important that you understand all the nuances of this document so you can have a lot more clarity about what's going on so we're going to break down the entire loan estimate everything that's going on in there so that you can have a better understanding of okay this is what my rate is this is what my payment is this is how much everything is going to cost so you can feel like you're more in control of the process and have a handle on what's going on instead of feeling like you're going into this a little bit blind and even though this is a document that's required to be sent to you there are a lot of people who kind of gloss over it and they don't actually know how to read it because it can be a little bit confusing so a little bit of a background of what the loan estimate is it's three pages and it's going to detail mainly the terms of your loan and the costs of your loan and the goal for it the reason the government put this into place is it's supposed to be a good faith estimate so the lender's best idea of how much this loan is going to cost so think of this like a map of your loan there are some things that the lender can tell you that are exactly true about your loan for instance the interest rate the mortgage insurance you're going to pay and how much the lender charges however there are also a lot of other things that the lender has to estimate that's why this is called a loan estimate it's a map it tells us most of the details but it's still the lender's best estimate about a purchase transaction and the reason why it's an estimate is there there's things that are actually in your control things like homeowners insurance um how much the title company costs depending on who you shop with for title insurance um so all these things can change and that's why this is an estimate here okay so let's first talk about um what is required in receiving a loan estimate so there are rules basically six rules that trigger a need for a loan estimate so if a lender receives your name your income your social security number a property address an estimated value of the property and the mortgage loan amount sought so how much loan you want to get then a lender is legally required to give you a loan estimate within three business days all right this isn't an option this isn't something the lender oh we didn't really feel like it it's a legal requirement that they have to give this to you and so this is how this works here are the closing days aligning with when the disclosures have to be sent so feel free to take a screenshot of this if you want to look at it for later so basically if you give these types if you give this amount of information on these days this is when the loan estimate would be due to you and the same applies for a closing disclosure so let me hop back over to the loan estimate here a closing disclosure is similar but there are multiple different types of estimates you're going to be getting through your home purchase all right so let's talk about this first section here and we'll cover this a little bit more in detail so it says save this loan estimate to compare with your closing disclosure so this is the loan estimate here this is the first disclosure that we're going to get there's a disclosure near the end of the process called a closing disclosure now in between here we might actually get multiple different loan estimates as things change for instance if your interest rate becomes locked instead of floating you might get an updated loan estimate so you could get several different loan estimates but we're just going to talk about the initial loan estimate here following up loan estimates would be if anything changes during the process that would be called a change of circumstance and we'll talk a little bit more about that later but the loan estimate here the closing disclosure is when we get closer to closing you're going to get a document that likely still is an estimate but it should be a much much closer estimate likely you'll get one closing disclosure in the beginning that's much closer to your final fees than the loan estimate and then before you're closing you should get a final closing disclosure that has everything locked in here and i know it can be really confusing because you get under contract for a house and you're like how do you guys not know what how much i need to bring to the closing table it's because there are multiple people who are charging different things when you're purchasing a home and not everybody has the exact numbers ready at the time that you sign for your purchase contract and so that's why it's really good to have a loan officer who can help explain the details of these fees to you so you can have a really solid understanding of everything that's going on here okay so let's start on the left here it's going to talk about the date issued nothing too crazy here who's the applicant so just double check your name your address also double check the property as well um so make sure that all the details in here are correct the city is correct everything like that because there can be some clerical errors that happen of course we don't want to purchase and get a mortgage on a house that we're not buying so double check this here right here's your sale price this is what you agreed to on your purchase contract how much are you buying the home for it's gonna be listed right there okay then right beneath this is our loan amount the difference between the sale price and the loan amount is normally what our down payment is if you're using a loan like fha or va and there's a funding fee that's going to be included in your total loan amount as well so it's important to keep that in mind but for most people this is going to be what your down payment is the difference between the purchase price and the loan amount right because what ends up happening is at the closing table the lender provides the loan amount you provide the down payment that money gets grouped and given to the seller as the sale price here okay so then we have our loan term how long is your loan for 30 years is common for most people might be a 15 year might be 20 years what is the purpose purchase refinance are normally common in here also is this a fixed rate or an adjustable rate loan so a fixed rate loan means that after closing your rate will never change your principal interest will never change for the remainder of your loan if it's an adjustable rate mortgage that actually means that the rate can change in the future a lot of people before the housing crash were inadjustable rate mortgages their interest rate went up so high their payment went up so high they weren't able to afford it and that's why a lot of people had to default on loans before the housing crash so be careful that if you do get into adjustable rate mortgage you are very certain and you understand all of the complexities and the details of an adjustable rate mortgage fixed rate at the moment is likely going to be your best option then what is the loan type we looking at conventional fha va another option in here could be something like usda or maybe a portfolio loan it could be in here as well loan id this is just tracking your loan in a database nothing too important to keep in track there rate lock this one is really important so the rate can be affected in two ways there is the locking portion and then there is the fixed portion and these are referencing what happens before closing and after closing so before closing your rate can either be floating or locked so if it is floating that means it's changing with the market right if you look at what are interest rates today that's because interest rates actually change multiple times per day depending on what's happening in global markets and so when it's floating your interest rate might be given to you as a quote but it's not locked in yet and so what you want to do is talk with your loan officer about when is the best time to lock locking it in means it will then be fixed and will not change before closing all right so it can either be floating then it gets locked then you have closing and then after that if you have a fixed rate loan it will never change if you have an adjustable rate loan it may change depending on the terms of that so with a lock locks do expire so it's important to keep that in mind and so if your loan officer does choose to lock up front you need to make sure that that lock expiration date happens on or after the closing date because your your rate lock can't expire before closing you have to hit closing the closing date actually finalize the loan before your rate lock expires and if you don't there often is an extension charge to extend the rate lock okay so we covered our loan amount we also have our interest rate here this is one of the big numbers that most people are focused on so we see 3.875 this is a an older loan estimate from the cfpb so we're going to see some higher rates on here something interesting about this second column is can this amount increase after closing is really helpful to look at as well right our loan amount cannot increase after we close that's great interest rate cannot increase after we close um if you had something like an adjustable rate mortgage that might be the case there okay now we have our monthly principal and interest this is important one we want to keep in mind so this is what the lender charges us for the loan itself all right this cannot increase after closing awesome prepayment penalty both of these these options here are what are called risky features so prepayment penalty um on this loan it says yes so basically what that means is that if you pay off the mortgage early there could be a penalty to it most loans today don't have a prepayment penalty but it's good to just double check for this balloon payment this doesn't have one as well bloom payments are risky because a balloon payment basically would say you have the loan for five years and then after five years you have to pay the full thing off in one lump sum that's a risky feature because you don't want to get into this and then realize you don't have the money in five years or ten years or whatever that bloom payment is to then be able to pay off this mortgage so normally we want both of these to say no okay then we go to our projected payments what's happening in years one through seven and eight through thirty so why would these be different here the main reason is the change in mortgage insurance that'll explain in a second so fixed rate loan principle and interest stay the exact same what did change was mortgage insurance mortgage insurance actually dropped because there was 20 equity in the home and that's where conventional mortgage insurance would fall off something like an fha loan you're likely not going to see that fall off unless you put 10 down va loans won't have monthly mortgage insurance estimated escrow so these are going to be things like your taxes and your homeowners insurance now these can change right the lender does not charge you insurance the lender does not charge you taxes those are set based on the insurance company you choose and the county that you're in as well and so sometimes people will say oh my gosh my my mortgage payment went up why did the lender charge me extra money it's not taxes went up those are things you have to take up with your county the lender will not change your taxes for you and so this then tells us our estimated total monthly payment this is what the lender is going to charge you every single month either you put this on a recurring payment or you choose to pay by check or whatever each month this is the number you need to be really comfortable with and make sure can i pay 1050 every single month for my mortgage also considering that i still need to pay things like utilities and any maintenance costs for my home as well so again this 206 number this is breaking down what's in 206 so you have property taxes included in our escrow account homeowners insurance included in the escrow account escrow account is basically where the lender is going to collect these from you monthly and they will then go pay off those fees for you because for instance property taxes normally are paid semi-annually so instead of you having to pay a chunk of taxes twice a year the lender will collect monthly payments from you and they will then manage the twice a month or twice a year payments same with homeowners insurance it's usually an annual premium instead of you paying an annual premium homeowners insurance you know the time comes around to pay your premium and you're like i don't have all this money the lender is collecting that for you each month normally you can waive the escrow account on a conventional loan if you have 20 down okay right here we have a brief summary however i don't like looking at this section because it doesn't really tell us a ton page two is going to break down all of our closing cost details this is just a summary of page two okay so let's look at our closing cost details this is where everything is included the only thing that likely won't be included in here for you is going to be your homeowner's inspection um since it's an optional thing you're not required to get it for a mortgage usually it's not included on here this can depend the lender by lender but just keep in mind an inspection can run on average somewhere around 500 and this can change depending on if you need specialty type inspections so section a this right here are what are called origination charges this is what the lender is going to charge things in section a are not allowed to change so that's one of the main reasons why a loan estimate exists is so that a lender can't say yeah it's going to cost this much and then you get to closing and it's a bunch more so if the lender says section a costs are only only going to be eighteen hundred dollars the lender can't come back at closing and be like oh actually it's three thousand they're not allowed to do that they they have uh there's a binding to the loan estimate when they create this and they're now bound to this charge okay let me erase that because this is in the way of everything else so points what are points basically points are think of it almost like prepaid interest in a way so you can pay extra money up front to lower your interest rate you can also do the inverse you can receive a credit and get a higher interest rate so points can give you a lower interest rate a credit can give you a higher interest rate so sometimes people choose to pay points to lower their interest rate that way they can save some money on interest then you have the other fees that the lender might charge here so this lender is charging an application fee and an underwriting fee so this is what they have here again these cannot change in the future section b these are services you cannot shop for basically they're services that the lender doesn't provide they're provided by another third party but the lender is not letting you shop for that service so same thing here the lender is held to these fees these are not allowed to increase exponentially on you at the closing table so if they say 672 now it can't be 1200 in the future they are stuck with these fees so you have the appraisal fee this is gonna be super common on most loans credit report these are all very standard fees flood determination fee flood monitoring tax service tax status research fee um these are all pretty common and if you have questions about them if you need some explanation talk to your loan officer about what are these fees being charged can't we understand why this is needed here section c these are services you can shop for mainly what's going to be included in here is title so when you purchase a home there's going to be a company that does a title search of your home basically they're going to be managing how clean your deed is making sure there aren't what are called title defects um so just basically making sure that the chain of ownership is clean and so when when you own your home when you sign to purchase that home you're going to be the sole owner no one else is going to have a claim to your property that they then could contest in court so in here you actually can shop for this now most people that i've run into don't actually shop for their own title insurance and most title companies aren't you're not going to see huge differences in cost between them so often they will rely on their lender's recommendation or the real estate agent's recommendation because it's good to work with the title company who can actually provide a title search report very quickly sometimes i can see title companies that they just take a long time and the longer that takes it can put your closing in jeopardy of taking too long and then you're out of contract so if you do shop for your own title insurance then the lender is not held responsible for these fees here okay however if you choose the one that your lender recommends or is on your lender's list of what are called settlement providers which will be provided in a document similar to um at the same time as your loan estimate then this is going to be held within a 10 tolerance meaning it can't change more than 10 percent okay so things in here might be like a pest inspection fee so you can shop for this survey and your title as well okay section d this is just going to sum up everything that was above here then we move on to other costs so section e recording fees and other taxes normally the county is going to charge money to be able to actually record the deed and the mortgage just part of the county doing their charges uh then we also have transfer taxes this doesn't apply in every state for instance in ohio the buyer doesn't pay transfer taxes however in other states uh in your state as well they might charge transfer taxes where you're actually paying the tax for the transfer of the property that's up to your own county and your own state all right the lender does not have control of that i think it's something really important to remember about your loan estimate is your lender only is controlling section a everything else your lender doesn't control this is why it's an estimate they're estimating all of these other third party things and so if things in here change it's important to talk with those individual people not get frustrated at your lender because if the title fees come back different we need to talk to the title company and not necessarily the lender about why those changed here so section f these are prepaids so when you do purchase a home normally you do need to pay a year's worth of homeowners insurance upfront on this loan estimate six months not sure exactly why 12 months is normally the standard that is going to be in here all right then mortgage insurance premium if there is any usually that's not prepaid for most people unless you take that choice prepaid interest this is from the time that you close until your first payment is due so what's really interesting about mortgages is there's always going to be a full month worth of time that you don't make a mortgage payment and mortgage payment is always going to be due on a first so for instance if today is the 15th of september we're actually going to skip all of october and the first payment would be due on november 1st um in this i believe let me double check if this is gonna be normally i don't believe the first date is going to be listed on your loan estimate or the first payment date um so that's for the interim interest so you're paying interest each day that you didn't make that mortgage payment some people like to think of it as like skipping a first mortgage payment which isn't technically true when we do the full math you're paying the full loan over 30 years however you're just not having to pay the principal during that first period then also property taxes if that's being required usually not required unless that's something required by your county section g this is your initial escrow payment at closing if you're waiving an escrow account this will be all these numbers will be blank however if you do have an escrow account normally there's a few months of homeowners insurance and taxes put into an escrow account all right and so at minimum for most lenders there's a requirement of two months of a buffer okay so the escrow account always have to have always has to have two months of each homeowners insurance and property taxes however likely you're going to see more months collected of each because what the lender is then doing is they're creating an adjustment to see okay so homeowners insurance would be due next year on this date and then the next property tax date is on in three months from now and you know the following so if it's due three months from now but there's a full build due what they need to do is have enough in the escrow account to make that full payment over three months so that's why they would collect more and then usually you're going to get a proration from the seller to make up the difference so i hope that makes sense because if you only were in the home for three months but they're giving you a tax bill for six months the seller then owes you three months worth of taxes and a tax paration okay i hope that makes sense let me know in the comments if it doesn't and i can add some clarity to that then you also have the owner's title policy now this is included this is part of title but why is it in the other section and the reason why is because this is optional all these title fees are required on the loan every lender is going to require a title search however the owner's title policy is an extra protection that you can get to help you against any future title claims that come against the home so that's why that's optional in another section here all right then we have the sum of e f g and h and then section j shows us the total sum of all of these closing costs then there's also a lender credits so it can be a little confusing because lender credits and points work as an inverse relationship to each other but the lender credits is over here if we had any so if we're getting if we were getting any lender credits then it would say something over here maybe we're getting three thousand dollars as a lender credit but we're not uh so then what happens is we're doing the final math of cash to close so cash to close is this figure that basically cash to close means how much do i have to write a check for and bring it to the closing table how much does that number need to be it's your cash to close it's not your closing costs it's not your down payments cash to close cash to close is the bottom line figure that does that factors in your closing costs your down payment and any other credits that you're getting all factored together so what it's going to do is it's going to add everything right here in this box so total closing costs um any closing costs financed so paid from the loan amount this often will happen if you do have something with upfront mortgage insurance like an fha loan va or usda loan normally those closing costs will be listed out here usually in section b but then the loan amount will be increased for the same amount and you'll see how it's financed in here all right so that would actually be as a negative figure um so closing costs the amount financed the down payment that we're paying as well and if we remember this is actually the difference um between our sale price and our loan amount our deposit so if you may if you put an earnest money deposit that was money that you already paid it applies as a credit towards your cash to close since it's money that you already paid um if there's any funds for the borrower but usually not seller credit if you have a seller credit negotiated in your contract that will be here and then adjustments or any other credits that seem to happen in here um this could happen a good example of this would be um if there's like a rebate for an appraisal what can also happen is i talked about how the lender is locked into these fees if if uh the costs change above what the lender is allowed to change there can be what's called a tolerance cure where the lender actually has to pay for the overage and you can see that listed here so estimated cash to close is right here 16 054 this is theoretically how much this person should expect to bring to the closing table and it's important to always remember this is still an estimate so if you're at the stage you're under contract you've got your loan estimate and you're like cool 16 000 sounds good we're comfortable with that but you also want to make sure things don't change too much it might be good to talk with your loan officer about hey what could change on here so we have a better understanding of what to expect and if things do change you should be getting corrected loan estimates as you go along uh while being under contract so then we go to page three this is just telling us some additional information at this point we already know what kind of loan we're getting the purchase price the rate the payment that we're making if we have an escrow account or not how much is being included in the escrow if there's dangerous features on our loan and what are the closing costs both from the lender and from everybody else how much do we have to bring bottom line we already figured out all of that now this tells us some additional information like who is our lender who is our loan officer what you can actually do is you can look into your lender's mls number so you can just google search nmls consumer lookup type in their number and actually see if there's disciplinary actions against your loan officer if those have been taken in the past then what we can do is look at comparisons so when you're under contract if you get loan estimates from different lenders that you're talking to you can use a section to compare which loan offs or which lender do i want to work with there's a really quick comparison table built in here so we can see in five years the total that you'll pay it in principal interest mortgage insurance and loan costs and the principal that's paid off so that can be really interesting if we look at three different loan estimates what's changing between the two in a five years time so we can take a shorter time horizon look at this which loan is better because it's important to remember you're probably not going to have this loan for 30 years most people refinance within five to 10 years and usually don't hold on to the loan for 30 years also what's the apr as well so the apr is taking both the interest rate so how much do we pay in interest but it's also considering what did we have to pay to get the loan so what were the finance costs um so things like what did the lender charge what was the appraisal cost what was title costs along with things like mortgage insurance are all included and expressed as a total rate of the overall costs of the loan apr is an okay metric to compare loans but it assumes that we're carrying the loan for 30 years because it's only looking towards the very end of the loan and so what can be a difficult measure about this is loans actually change in their cost over time and so in the beginning 10 years you might find one loan is cheaper but in the following 20 another loan is cheaper that you're comparing apr doesn't take that into account and so it's an okay metric but don't just solely rely on apr also the total interest percentage this can be great to help look when you're comparing those loans so this is the total amount of interest that you'll pay over the loan term as a percentage of your loan amount they also put in some other considerations in here that can be a little bit helpful usually not make or break on loans um so the appraisal so it does specify hey we can order appraisal to determine the property's value charge you for the appraisal and give you a copy of it even if your loan doesn't close you can pay for an additional appraisal for your own use at your own cost if you do that it's not going to be considered by the lender only the lenders only the lender can order the appraisal that they will then use for the property value assumption if you sell or transfer this property to another person we will or will not allow assumption on this loan under the original terms there are some loans that allow you to basically transfer your mortgage to somebody else it's called an assumption usually not available on most loans homeowners insurance this loan does require homeowners insurance on the property which you may obtain from a company of your choice that we find acceptable if you end up removing homeowners insurance the lender can actually force place homeowners insurance and charge you a ridiculous amount of money for that so you do have to maintain homeowners insurance on your home even after it closes late payment so this is saying if it's 15 days late we'll charge a late fee of 5 of the monthly the monthly principal and interest payment this is very common terms for most loans that i've seen refinancing this loan will depend on your future financial situation property value and market conditions you may not be able to refinance this loan this is basically just saying hey when you do get a refinance it's not just an automatic thing we're not just going to give you a lower rate you do have to re-qualify for a new loan in the future to get a refinance and then servicing we intend to service your loan if so you'll make payments to us or we insert we intend to transfer servicing of your loan this is when people talk about are they going to sell my loan or not and so basically what happens is once your loan closes you don't have to make payments to somebody and that's not always the same company that you close with you maybe you may have closed with lender a and you've been paying them for a year and then that your loan then gets sold to lender b the only thing that changed is who you're paying those payments to so you're just paying them to lender b loan terms stay exactly the same they will never change okay and then with a loan estimate at the end there you do have to sign it to say hey i received this i recognize that i received this loan amount this is then what's going to allow everything else in the process to move forward along with another document in a very similar package of documents so we'll get called an intent to proceed and so you do have to acknowledge the loan estimate and sign an intent to proceed before anything else in your loan can move forward all right so this is the loan estimate um this is everything that you need to know about your loan that can be detailed at this time i know it can be frustrating say like i wish they could just give me one solid number unfortunately real estate doesn't work that way there are a ton of people that you're going to be working with who are going to help you close on your home not only do you have your real estate agent but there's your lender and your appraiser and the title rep you have people in the county who are going to help record your the ownership of your home you have an insurance agent um you have an inspector there are so many people helping you purchase a home and that's why it's an estimate as all those fees are unknown until invoices start coming in and things start to get more clear as you move through the process at that point you're going to get a closing disclosure it's likely still going to have things that are a little bit estimated but should be much closer and then you'll get your final closing disclosure before closing that tells you exactly how much you need to bring to in the closing table normally what happens is the loan estimate is quoted a little bit higher than normal uh are higher than what actual closing costs will be so it's loan estimate maybe another loan estimate that you get closing disclosure final closing disclosure normally the costs are going to come down as you move through the process but always feel free to ask your loan officer hey what could change here could you help me understand what the difference is between these two loan estimates could you help me compare my loan estimate to my closing disclosure because those documents are going to look differently from each other feel free to ask questions to your loan officer they're there to help you understand this document and to help you move through the process as smoothly as possible if this was helpful for you and you made it all the way to the end good for you feel free to like comment subscribe that always helps this video thank you so much for watching

Channel: Win The House You Love

Views: 104,862

Keywords: win the house you love, kyle seagraves

Id: ZLC6b5aVs1U

Length: 31min 10sec (1870 seconds)

Published: Tue Sep 28 2021