Mia Schultz

Hi, I'm a mortgage expert living in Illinois. I am also licensed to help with your home loan in many other States across the Country. Do you have mortgage questions? How can I help? View Profile

What You Need To Know About The Loan Estimate Document

I'm here today to tell you about the loan estimate. This is one of the documents that you're going to get right at the beginning of the process during pre-approval and right when you go under contract; and it is a breathing, living document that's going to change as the process goes on.

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And as we move through your loan, as we lock in rates, as we get invoices in from all the people that are involved in doing your loan.

So let's start out right up at the top of your loan estimate. You're going to see one of the most important things when you go under contract is your rate lock. It's got a note and a yes button right there. You can choose to float your rate, you can choose to lock it.

When you get this original loan estimate, it'll tell you which one you have. If you're locked, it's going to give you that date that it's locked until; if you don't close before that date, what's going to happen is you're gonna have to incur extension fees and we'll go into that when we talk about rates in a different video.

Once your rate is locked, we're bound by that time period, which is usually the same 30 days that you have to close on your home. So keep that in mind getting your documents into your loan officer as soon as they ask for them. 

Let's move down to the loan terms: this is page one of the loan estimate. The loan amount that you see there is not the purchase price, this is the loan amount, which is what is left after you take your purchase price minus your down payment.

So in this example that we're using, the loan amount is going to be $408,500. The interest rate that is locked in for this particular situation is 3.5%. This is not going to change, nor is the loan amount going to change unless something changes down the line. Right now, this is your locked-in scenario unless you choose to do something different.

The monthly principal and interest payment is $1,834.35. Your principal and interest payment is the one item in your loan payment that's not going to change over the term of the loan. This is a 30 year loan that we're doing for this client, and so for 30 years, $1,834.35 is going to remain the same and not fluctuate up and down. 

Under projected payments, you will see all the different aspects of the payment. There's your taxes, your insurance, sometimes PMI depending on the amount of money that you put down, and your principal and interest payment. As we talked about earlier, the only thing that won't change is the principal and interest, which is your actual loan amount times that interest rate.

The taxes and insurance are going to change every year. Your taxes are always going to go up. Your insurance is always going to go up. So that's something that you guys want to keep in mind - now that you're a homeowner - that this is going to change. When your tax bill comes out each year, you're going to want to double check that, divide it by 12, and make sure that you're escrowing enough so that you can pay that bill when it comes in. 

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We're always going to be here to help you figure that out too when the tax bill and insurance bills come out and renew each year. So give us a call and we can go through that with you so that you're not surprised when your lender does their annual audit and tells you that we need a little bit more money. 

The next section says estimated taxes and insurance and assessments. This is the section that tells you whether you're escrowing the taxes and insurance or whether you're going to pay them outside of the mortgage payment. In this example, we're going ahead and we're paying these in escrow.

So you'll see the little yes box there on the right hand side. Down at the bottom of page one, this is your estimated closing costs. This includes closing costs and fees and prepaid items and interest - so it's everything all bundled up. In the beginning, right when we pre-approve you and when you initially go under contract, there's a lot of things that are unknown at that point.

So this is an estimate until we start locking in, ordering your appraisals, credit reports, title etc, once we actually have a house that we're working with. So once those invoices come in, those numbers that we're estimating throughout this process are going to change and fluctuate to reflect what you actually have to bring to closing.

The last line on page one is your estimated cash to close. For this scenario, it is $36,811 and that includes your down payment plus your closing costs. So this is your summary page. Page one kind of gives you an outline of where you're at. 

Page two is where all the detail comes in. On the left hand side, on the top of page two are the closing cost details. Box A our origination charges. This is the box where we as the lender know exactly what we're charging you, and this number is not going to change.

The processing fee and the underwriting fees may differ from lender to lender, but once you get a loan estimate, that number shouldn't change. The points that are listed on here are points that the borrower has chosen to pay in order to bring down his interest rate.

We will talk about points and interest rates and the fluctuations, how you can use the interest rate to either give you a credit back, or to pay points and buy down and get a lower interest rate - that will be on another video. 

The next box is B: services you cannot shop for. That means your lender's going to order the appraisal. We're going to order a credit report, we're going to order a flood certification: these things are ordered by us.

We control the process so it wouldn't be a job for you to say to go out and find your own appraiser and order that by regulation we're responsible for doing that. And so we put those estimates in there about how much those numbers should equal out based on the house that you're buying, the area you're buying in.

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We always try to quote a little bit on the higher side because it's much more fun to come to you at the end of the day and tell you that our estimates are going to be a little bit lower than we expected rather than telling you that they're going to be higher. 

So down under C: services you can shop for. This is the title fee. This is where all the title fees come in. This is one of the bigger costs in the process. It does say services you can shop for because we, as lenders, have title companies that we like to work with, but so do the real estate agents and the attorneys involved in your process.

And depending on your state and county and what's customary there, you guys are going to dictate to us through the contract where we're going to order the appraisal from. Once we have that actual information, then we're going to go in and repopulate the actual numbers based on the house that you decided to buy.

So in C here the total for title fees for this county is $3,656. Again, like I said, once we get down to being under contract, those numbers are going to change based on the title company that you use and the house that you bought. Line D is showing you just the total of this whole first column here. 

Let's go back up to the other costs. So sections  are your taxes and government fees. Those will populate in once the title company gives our costs. Section F and G are actually not fees. Section F and G are costs of ownership.

So these are pre-paid for your insurance, taxes, and interest. Your homeowners insurance is going to be paid upfront at closing, and you're going to pay a full 12 month premium. At the same time when you start making your payments, you're actually going to be paying 1/12 of that in your escrow account as well as part of your payment.

Your interest you're going to pay from the day of closing through the end of the month. What always happens is we get you even on the interest till the end of the month and then you skip that first month's payment. So your actual first payment on your mortgage is going to be over 30 days from the date you close - so generally about 40 days after you close.

The property taxes are the third prepaid item. If there are any property taxes due on the house, that's going to either be paid by you or by the seller - depending on whose responsibility it is in the county that you're in that would be considered a prepaid as well.

Under G: the initial escrow payment at closing, this is where we've had that little escrow account. Your escrow account is your savings account where we hold your taxes and insurance money that you make in your payments every month.

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So that when those payments come due, your tax bill and your insurance bill that we've got enough in the account to make that payment. And then H: these are other miscellaneous fees for this particular client, owner's title is an optional fee. Sometimes you might see in their HOA fees for condominiums or pest inspections, things like that might go under that H column. 

And finally are calculating the cash to close. This is where we summarize everything from this page with a total closing costs of $18,340 and closing costs financed would be any upfront PMI that you might pay, for instance in an FHA loan, that would be on that line.

Down payment funds from the borrower: that's any down payment that you're putting into the program. Your deposit, which is your earnest money. And your estimated cash to close being $36,811. And that's what our loan estimate looks like. If you have any questions, please feel free to reach out to me. Every one of these looks a little bit different, but we're here to help explain them all. Talk to you soon.

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Mia Schultz NMLS # 217815 Mortgage Consultant 509 W. Old Northwest Hwy Suite 100A Barrington, IL 60010 (630) 593-0920 mia.schultz@findmywayhome.com

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About Mia Schultz

Hi, I'm a mortgage expert living in Illinois. I am also licensed to help with your home loan in many other States across the Country. Do you have mortgage questions? How can I help?