On October 3, 2015, the Consumer Finance Protection Bureau (CFPB) made it easier for homebuyers to find and process these other important numbers. The revised Loan Estimate (LE) form explains and details the terms and costs of your mortgage. It’s a lot of numbers, so be sure to talk to your loan officer if you have any questions before closing. Here’s the rundown.
1. Loan Terms: These numbers are locked in and cannot increase after closing, if you’ve selected a fixed rate loan. They include the loan amount, interest rate, monthly principal and interest payment. Your monthly payment, however, can still vary based on homeowners’ association (HOA) fees or escrow amounts for taxes and/or insurance. This section of the new LE form also details any applicable prepayment penalties, which are fees charged for paying off the loan early.
2. Estimated Total Payment: It’s important for you to know how much you’ll be paying towards your mortgage each month so that you can create a budget. You’ll be able to see the principal and interest listed, as well as your estimated escrow payment for property taxes and insurance.
3. Closing Costs: Closing costs include a lot of line items and fees. The most important numbers are the origination charges which are the fees charged by the mortgage company. These cover the processing, underwriting, administration and application costs. Origination/discount points, which equal a percentage of your loan, will be reflected if applicable depending on the interest rate you have chosen. Also included are fees that you may be able to shop around for such as survey and title fees. Other charges, such as appraisal and credit report, are non-negotiable. Closing costs also include prepaid interest, the number of days you’ll have the loan until the first payment is due and property taxes collected to establish your escrow account.
4. Cash to Close: This is the amount of money you need to bring to closing.
5. APR: The Annual Percentage Rate (APR) is the last number you’ll find on the loan estimate. This is not to be confused with the interest rate. Instead, it is your cost over the loan term expressed as a rate.
6. Rate-Lock Period: This is the amount of time that your rate is locked in and cannot change. This period is usually 30 days. If your rate lock expires before closing, or before funding in the case of a refi, the interest rate may be subject to change. Make sure the expiration date extends beyondthe closing date, especially because closings don’t always occur on time.
7. Total Cost of Borrowing: This is the total amount of how much it will actually cost you to borrow the money over the length of the term.
8. Amortization: Ask your loan officer for a detailed schedule that breaks down how much of each payment will go towards principal and interest.
9. Prepayment Option Amount: You can generally pay additional money towards your principal balance every year without being charged a penalty.
10. Insurance Charges: If you’re putting down less than 20% of the purchase price on your new home, you may be charged a mortgage insurance premium until the principal is 78% or less of the cost of the home.