MORTGAGE RATES ARE IMPROVING AS I AM TYPING THIS BLOG – DESPITE THE FED’S RATE HIKE – showing once again that mortgage rates often do not move in unison with the short-term Fed Funds Rate (the rate the Fed increases).
I recently blogged about the tricks lenders play when providing loan estimates to help lure in potential buyers.
In response, I received numerous requests to put together a breakdown of how to read an upfront Loan Estimate (LE) as a reference to help analyze quotes or LEs from other lenders to: (1) avoid surprises; and (2) learn how to accurately compare LEs.
So, I asked JVM’s Senior Managers to list out what everyone should watch for, based on what our team has learned from reviewing thousands of Loan Estimates.
The below info is what they put together. I should add too that the blog is actually very short, but only appears long because of all the screenshots.
Things To Look Out For On Your Loan Estimate
1. Check Your Terms (Top of Page 1)
This section confirms the loan details. Buyers should make sure the numbers and the loan program are both indicated
2. Box A Origination Fees (Top of Page 2):
Box A is where the lender will reflect its fees, along with any points charged for the rate. This is the box buyers want to focus on when comparing quotes amongst lenders.
3. Third-Party Fees (Page 2):
Boxes B, C, E, and H collectively represent third-party fees associated with the proposed transaction. Note: “third party fees” are fees charged by entities other than the lender and over which lenders have no control; these fees include appraisal, title and escrow, insurance, and inspection fees.
Early in the process these fees are often generalized estimates but should give buyers a great idea of what to expect. WARNING: Because these fees are not lender-specific items or controlled by the lender, they are often not included in initial quotes or they are under-estimated to make cash-to-close or closing costs appear artificially low. It is important to remember that these fees will be the same no matter which lender provides financing.
4. Prepaids (Page 2):
Sections F and G show all prepaid items due at closing for items such as homeowners’ insurance, impounds, mortgage interest, and property taxes. WARNING: Lenders often will remove impounds or show only a few days of prepaid interest in quotes to again make their closing costs or “cash to close” appear lower. This is very misleading, however, as buyers are often shocked and upset when they learn (prior to closing) that they need far more “cash to close” than they previously thought.
So, once again, buyers should not be fooled by low fees in Sections B-H. These are all third-party fees or prepaid items that will generally remain consistent across lenders.
The above explanations only provide a cursory review of the most important things to look for.
If anyone would like a deeper dive, the CFPB has a great resource here: Loan Estimate Explainer.
More importantly, we are always here to help too, as our team is very skilled at reviewing Loan Estimates and would love to help.
We encourage all borrowers to send us their Loan Estimates from other lenders for review because there is nothing to lose and … a lot to gain.
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167