A Loan Estimate is important when reviewing loan terms because it provides clear and detailed information about the estimated costs and terms of your loan.
It includes information such as
- the interest rate,
- fees,
- and closing costs,
which can help you compare different loan offers and choose the best one that fits your financial situation. The Loan Estimate is a standardized form that helps you understand the loan terms and make informed decisions regarding your mortgage. It is important to carefully review the Loan Estimate and clarify any questions or concerns with your lender before proceeding with the loan application.
Here’s a step-by-step guide to understanding the different sections of a loan estimate:
1. Section A (Origination Charges): This section includes the lender’s cost associated with the interest rate that you choose for your loan. This cost is based on the loan option chart presented during the home/rate shopping stage.
2. Section B (Services You Cannot Shop For): This section includes costs that you cannot shop for, such as:
- Appraisal: This is the cost associated with ordering an appraisal. The cost varies by transaction type, with primary purchases costing around $600 and investment purchases/refinances costing anywhere between $800-$900. Rush fees may also apply for reports needed within two weeks.
- Credit Report: This cost allows lenders to pull your credit score and a list of your current monthly debts.
- Electronic Registration (MERS): This cost registers your loan on a national database for servicing.
- Flood Certification: This determines if the property is in a flood zone.
- Tax Service: This monitors for unpaid tax bills and liens associated with the property.
- Title – Attorney Document Preparation: This cost covers the drafting of legal documents by Texas Attorneys, such as the Deed of Trust.
3. Section C (Services You Can Shop For): This section includes costs that you can shop for, such as:
- Survey: This cost covers ordering and obtaining a new survey, which varies from $450-$600 and could be more if an elevation certificate is needed.
- Title – Endorsement: This cost provides coverage beyond a home buyer’s standard policy.
- Premium for Lender’s Coverage: This cost protects the lender against title problems and goes along with the Owner’s Title Policy.
- Settlement or Closing: This is the title cost for the services during the loan process and varies among Title Companies.
- Tax Cert/Guaranty: This cost includes Title ordering your Tax Certificate for property taxes and HOA costs.
- Section D (Total Loan Costs): This section totals the costs associated with Sections A, B, and C.
- Section E (Taxes and Other Government Fees): This section allows all parties to properly record all documents, such as the Deed of Trust and Warranty, and includes recording fees and other taxes.
- Section F (Prepaids): This section includes:
- Homeowner’s Insurance Premium: This cost covers the insurance for 12 months paid at closing.
- Prepaid Interest: This interest cost includes the period between your close date and the end of the month.
- Section G (Initial Escrow Payment at Closing): This section refers to setting up an initial escrow account with the lender, which requires you to contribute three months of insurance and taxes at closing.
- Section H (Other): This section may include HOA Transfer cost, which will be added to your final closing documents as Title provides this information via the Tax Certificate they order during the process. This fee will not be disclosed on your loan estimate unless quoted by your lender.
- Section I (Total Other Costs): This section totals the costs of Sections E, F, G, and H.
- Section J (Total Closing Costs): This section provides the total of Section D+ I and reflects any credits associated with your interest rate, which are also known as discount points.
- Calculating Cash to Close: a. Total Closing Cost: This is the total associated with Section J. b. Down Payment/Funds from Borrower: This is the total of how much you are putting down on your home. c. Deposit: This reflects your earnest and option money provided to Title per your executed Purchase Contract. d. Seller Credits: This reflects any seller concessions received at the time of loan submission and will be updated should concessions be received throughout the loan process. e. Adjustments and Other Credits: This includes any Policy credit, if applicable, per the executed purchase contract.
Other Items to Look For:
- If you are purchasing a condo, there might be a condo certificate fee in the amount of $150. This fee allows the lender to order a Condo Certificate that provides information such as HOA costs, transfer fees, Master Insurance Policies, Condo Budgets, etc.
- If your company charges a fee for ordering a written verification of employment, there will be a $50 charge placed in Section B.
- If you order your appraisal and it comes back “Subject To,” there will be an additional $200 cost with ordering a Final Inspection to complete the report.
- If you are signing via a mobile notary, there will be an additional $150 cost located in Section C as this is a charge to the borrower per the Title company.
Understanding the loan estimate and its various sections can help you get an idea of the costs associated with your loan and prepare you financially for the home buying process.
We hope this was helpful and Please Think Blink!
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