Loan Estimate Overview
Brandon Brotsky walks Homebuyers through the Loan Estimate paperwork in this Loan Estimate Overview.
When getting a loan it's important to understand what you're paying for. Here's an overview of the most important parts on the loan estimate. The first section of the loan estimate that's important are the loan terms. This is going to include the loan amount, the interest rate, the monthly principal and interest portion of your payment, whether or not there's a prepayment penalty or a balloon payment due on the mortgage.
Starting with the loan amount, that's the amount you're borrowing against the purchase price. Your interest rate is going to be the rate which your monthly payments are going to be based upon. The monthly principal and interest payment is the amount you're going to pay every month towards the balance and the interest due on that mortgage. A prepayment penalty, most loans don't have one nowadays, but that tells you whether or not there will be a penalty for refinancing and paying off the loan early or selling the home and paying off the loan early. A balloon payment lets you know if there's a large balance due in less time than the actual loan term.
The next important section of the loan estimate is your projected payments. Now, this is going to include the principal and interest portion of the payment, but it also showed what your taxes and insurance will be on a monthly basis, known as your escrow. It would also show you whether or not you have mortgage insurance due on the mortgage. Now mortgage insurance, some of you might know this as PMI, is required when you're putting less than 20% on the property.
As I said, this section is going to show you principal and interest plus mortgage insurance and the total monthly payment. It's also going to break out how much you're paying for just taxes and insurance, and in some cases you might have a home that requires a homeowner's association. Separate from the principal, interest, mortgage insurance section it's going to show you a breakdown of just the taxes, insurance and any HOA fee if there is one that's required on that property.
The final important section of the loan estimate at the bottom of the first page is actually going to show you what your total closing costs are. These are all the costs you're going to incur to make the purchase of this property. Just below that you're going to see the total amount of funds you need to bring to the closing table. This will include all those closing costs along with the down payment that you've agreed upon for the home purchase.
This was just a general overview of the loan estimate, and it's important to understand exactly what you're signing before you move forward with the process. If you want a more detailed explanation of exactly what you'll see on a loan estimate, click the link in the description below.
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