by Ask Kate
Ask Kate about the new Loan Estimate form aka Know Before You Owe: What you don't know about the new Loan Estimate form could cost you big-time! So I'm going to walk you step-by-step through the form that replaced the Good Faith Estimate on October 3, 2015. At first glance, it might look complicated.
But please don't get overwhelmed. My tutorial will help you become a savvy mortgage shopper, able to compare interest rates and other fees like a seasoned pro. You'll even be equipped to spot prepayment penalties, balloon payments, and other slippery fine-print.
Effective October 3, 2015, Congress directed the Consumer Financial Protection Bureau (CFPB) to combine the Good Faith Estimate and Truth in Lending, you know, that form with the dreaded annual percentage rate (APR).
The outcome is a 3-page Loan Estimate form which must be delivered to applicants within three days of application.
The form falls under new government regulation called TRID (TILA-RESPA Integrated Disclosure) rules. These new closing rules consist of 1,888 pages and are also known as Know Before You Owe.
After you've finished reading this page, go back and follow my links to even further help on mortgage closing costs and current trends in interest rates. Let's get started, keeping in mind that Buyer Beware remains a worthy warning, in spite of the new consumer regulations.
View the Loan Estimate Form - Page 1
Identifying Information and Important Dates:
1. Double-check the accuracy of the date, your name, address, and estimated value of the property.
2. Also verify the loan term, the purpose (refinance, purchase, construction loan, or 2nd mortgage), the loan product, loan type, creditor’s loan identification number, and if you have locked in your interest rate, including the expiration date of the lock. Head's up! Unless your rate has been locked, your interest rate, lender charges, and lender credits can change.
3. Check the expiration date for the other estimated closing costs.
1. This section contains the loan amount, interest rate, principal and interest payment, and whether these amounts can change after closing.
2. The lender must disclose if you've been given a balloon payment, prepayment penalty, or an adjustable rate mortgage. Imagine that!
1. Here is where you'll find a monthly breakdown of the projected principal and interest payments, mortgage insurance, estimated property taxes, and homeowner's insurance.
2. You will also be told if property taxes and homeowner's insurance are to be included in the monthly house payment.
Costs at Closing:
1. Loan costs, other costs, and lender credits are totaled here with details on the next page.
2. Lastly on page 1 is the estimated cash to close, including the closing costs, with details on the next page.
2. Services you cannot shop for are found here, for example, appraisal and credit report, as well as services you can shop for, for example title insurance.
3. Loan costs are sub-totaled.
1. Government recording fees, prepaid taxes, insurances, and interest, and escrow reserves are disclosed.
2. Other costs are sub-totaled.
Calculating Cash to Close:
1. Total closing costs (loan costs and other costs), closing costs financed in your loan amount, down payment, funds you apply, deposits, and seller credits are calculated.
2. The estimated bottom line, the grand total in cash to close, is finally given.
Are you still breathing? Yes? Good! Let's wrap it up on the last page.
View the Loan Estimate Form - Page 3
1. Compare other loans to the amount you'll pay on this loan and the amount of principal reduction, both in the first five years.
2. Compare other loans to the annual percentage rate (APR), the cost of the loan over the total term, expressed as a rate.
3. Compare other loans to the total interest percentage (TIP), the amount of interest that you will pay over the loan term, expressed as a percentage of your loan amount.
1. You may be required to pay for an appraisal. (Ya think?) You have the right to a copy.
2. Look here to know if your mortgage will be assumable in the future.
3. You'll be asked to provide proof of homeowner's insurance and maintain ongoing coverage.
4. Not that you'll ever be late making your mortgage payments... but here's where you'll find out what happens when others go past their payment due date.
5. Your lender must come clean about their intentions to pass you off to a loan servicer after closing. Expect a transfer immediately.
1. Sign and date the Loan Estimate. Make sure you grab a copy, all pages. Pronto.
Oh! I almost forgot! The old HUD-1 Settlement Statement and final Truth in Lending form have been replaced by the new Closing Disclosure, a second TRID form.
The format of the Closing Disclosure mirrors the Loan Estimate so take a copy to closing. Because the two forms work in conjunction, it will be much easier to spot hidden fees or unwanted changes in the loan before you sign final documents.
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