Buying a new home this summer? Get to know your mortgage loan estimate first
The summer 2019 home buying season is already percolating, and the next few months should see a big upswing in U.S. homes available for purchase.
That’s no hyperbole.
According to Realtor.com, the outlook for housing in 2019 is only growing more robust as the summer homebuying season beckons.
The housing industry site calls for a “somewhat stronger” revised 2019 U.S. housing market forecast, with mortgage rates lowering to an average of 4.5%, which would make buying a home less expensive.
“The 2019 housing market is different than what we predicted in fall 2018, primarily due to an unexpected drop in mortgage rates in January 2019,” says Danielle Hale, Realtor.com’s chief economist. “We believe 2019 will be characterized by lower, but still increasing mortgage rates that will buoy home prices and sales by boosting buyers’ purchasing power beyond what we initially projected.”
“This will create a slightly hotter, but still cooling housing market relative to the initial forecast five months ago,” Hale adds.
Getting your loan estimate right
If you’re poised to jump into the housing market this summer, job one (after lining up a down payment and getting prequalified for a loan) is to get your Mortgage Loan Estimate from your mortgage provider.
Formally known as a “Good Faith Estimate,” your Mortgage Loan Estimate lists the essentials you’ll need to lock in before you sign on the dotted line.
In a word, a Loan Estimate is a three-page document that a homebuyer gets immediately after applying for a home loan. It includes a few specific “need to know” items regarding your loan estimate:
- The Loan Estimate, formalized by the U.S. Consumer Financial Protection Bureau, takes the place of the mortgage industry’s “Good Faith Estimate,” with the new Loan Estimate effective as of October 3, 2015.
- The Loan Estimate gives homebuyers a short, but vital, list of items attached to a potential home purchase. That includes the estimated mortgage loan interest rate, the estimated monthly payment, and the total closing costs for the home mortgage loan.
- The Loan Estimate also provides some ancillary information about a potential home loan, including the anticipated tax and insurance costs related to the home purchase, and whether the home loan’s interest rate and monthly payments may change down the road. Additionally, the Loan Estimate can detail fees attached to a home purchase, such as any pre-payment penalties if the buyer pays off the mortgage early and any penalties if the buyer is late paying their mortgage bill.
- The Loan Estimate is a universal document, meaning the same form is used by all mortgage lenders. That gives the document greater clarity and makes it easier to compare mortgage loans from different providers.
- A Loan Estimate can be provided by a mortgage broker and/or the actual mortgage lender, although a Loan Estimate from the lender will likely be more accurate, as they’re the ones issuing the loan.
- The Loan Estimate is not binding – it’s for information purchases only. In other words, receiving a Loan Estimate from a mortgage provider doesn’t mean that lender has (or has not) made a decision about green-lighting your home loan. Basically, it’s a blueprint for what happens if the mortgage provider does okay your loan.
Here’s what mortgage experts want you to know about your mortgage loan estimate
As the Loan Estimate is a critical document for potential homebuyers, mortgage experts advise buyers to review it thoroughly and focus on the following essentials:
Don’t get confused by the various terms used for a Loan Estimate. Different real estate professionals may use different terms for a mortgage loan estimate, says David Bakke, personal finance expert at MoneyCrashers.com. “Just for the sake of accuracy, it’s no longer called a Good Faith Estimate, but actually a Loan Estimate and Closing Disclosure form,” he says. “But the two function in exactly the same way.”
Feel free to use the loan estimate as a negotiating tool. Homebuyers should investigate all expenses and charges included in a Loan Estimate to understand exactly where they stand – and use that information to their advantage. “While a Loan Estimate typically can’t be leveraged or negotiated through the lender who provides it, one estimate can be leveraged against the potential estimate from another lender,” says Bakke. “It might work and might not work, but it never hurts to try.”
Get multiple loan estimates. Bakke advises getting a Mortgage Loan Estimate from at least three lenders and then doing a comparison. “If there’s any charge or fee that sticks out as excessively higher than the other quotes, you might want to rethink going with that lender,” he says.
Pay attention to the Closing Disclosure document. Once the mortgage loan is underwritten, the home appraisal is approved, title and homeowners quote is received, the homebuyer will be issued a Closing Disclosure form.
“The Closing Disclosure must be sent and signed by all borrowers three days before closing,” says Sonja Lane Bullard, an 18-year mortgage professional based in Cumming, Ga. “If the Closing Disclosure is not signed three days before the scheduled closing, the closing must be moved out.”
There is no legal way to close a loan before the three-day waiting period expires, says Bullard. “This is the government’s attempt to empower the borrower by giving them three solid days to review the Closing Document.”
Watch out for glitches. Sometimes, a Loan Estimate and/or closing document may trigger some problems, so be careful. “A simple unclicked date box in the e-signature can keep a borrower from closing on the day that they wish,” Bullard adds.
It’s okay to work with a professional. There’s no rule that says you can’t talk to a real estate agent, mortgage lender or broker, or other industry professional to get your Loan Estimate correct – that way you’ll avoid any unforced errors when getting close to buying a home.
“I always review all the details line by line with the client so they understand all the numbers, which numbers can change, and when and why those numbers can change,” says Elysia Stobbe, a mortgage loan originator at NFM Lending in Jacksonville, Fla.
Ask these questions from your licensed loan officer. If you do wind up working with a mortgage professional on your Loan Estimate, Stobbe advises asking these key questions:
- Is my interest rate locked?
- How does the interest rate for this loan program compare to other loan programs that I qualify for?
- How does the mortgage insurance rate for this loan program compare to other mortgage insurance premiums that I qualify for (if applicable)?
- How would putting down more or less money impact my monthly payment?
- If I used discount points to buy down the rate, what would the monthly savings be and how long would it take to breakeven on the cost of the discount?
- What are my prepaid costs? Do I pay those at closing or before closing?
Don’t sign off on any loans until you get these questions answered correctly, Stobbe advises.
The takeaway on mortgage loan estimates
Other mortgage industry insiders advise homebuyers to take a holistic, big picture look at their Mortgage Loan Estimate.
“Your Loan Estimate allows you to examine a mortgage transaction from a 360 bird’s eye view,” says Matthew Ryan, an attorney and real estate specialist at Flushing Law Group, in Flushing, N.Y. “With it, you can fully examine the key contract terms associated with the deal.”
According to Ryan, the “whole point” of a Loan Estimate is it ensures there are no surprises at the closing table.
“In reviewing the Loan Estimate, the home loan borrower is fully apprised and informed of a mortgage loan details with sufficient advance notice,” he says.
With potentially hundreds of thousands of dollars riding on a home purchase deal, a thorough review of your Loan Estimate makes perfect sense.
After all, getting your mortgage loan straight isn’t a luxury when buying a home this summer – it’s a necessity.