Of all the installment loans closing documents that you will come across during the home buying process, keep an eye out for two in particular: the loan estimate and the closing disclosure.
They aren’t long and don’t contain a lot of fine print, but together these legally required documents summarize all of the closing costs you will come across when obtaining a home loan.
Reading them carefully can reduce the last minute drama of signing installment loans. (“Wait, what? Is that a teaser interest rate?”)
What is a loan estimate?
The first of these government-mandated documents is only three pages long.
A loan estimate details the terms of your loan, including:
- Expenses, with clear “yes” or “no” answers to important questions, such as if each amount can increase after closing, if your loan includes a prepayment penalty or a lump sum payment, and what expenses are included in your escrow account.
- The expected monthly mortgage payment, including taxes, insurance and other assessments.
- Information about services you can and cannot purchase, such as pest inspections, survey fees, and house appraisal.
The loan estimate also offers data that can help you compare loan offers from multiple lenders such as https://bridgepayday.com/installment-loans/, including the total costs of third-party services, the annual percentage rate – your interest rate, including fees – and the amount of interest you will pay over the life of the loan, expressed as a percentage of your total loan amount.
An important section to look for is at the top of page 2, on the left side of the page. This is where you will see “Loan costs” and “A. Original costs ”. Here you will find two types of fees:
- Lender fees, which can have a number of different names, including “administration fees” or “subscription fees”, as indicated; there may be several others. These assembly costs are negotiable and you will want to compare them among the lenders as you shop around.
- Discount points, prepaid interest that you have the option of paying to reduce your interest rate. In the example above, it is displayed as “0.25% of loan amount (points)”.
You will receive the loan estimate within three days of submitting an application to each potential lender.
What is a closing disclosure?
After choosing a lender and completing the gauntlet of the mortgage underwriting process, you will receive the closing disclosure. It provides the same information as the loan estimate, but in its final form. This means that it contains the capitalized costs of your loan and the specific amount you will need to pay on closing.
You will receive this document three days before the closing date of your loan. Use this time to review the document for any changes, comparing your closing statement with the previously received loan estimate side by side.
The Closing Disclosure Form is only five pages long, but you’ll probably spend most of your time reviewing page 3 – it details the closing costs you’ll pay the seller. At the top of the page is a comparison table, showing the costs as reported by the loan estimate and the actual charges to be applied at closing.
Most importantly, this section clearly shows whether or not the costs have changed since receiving your loan estimate.
At the bottom of the page is the literal “bottom line” – the total amount you, as a borrower, will owe at closing.
What can cause a 3 day delay in closing
Any substantial revision of the loan conditions triggers a new three-day review. However, a change in the amount of a Realtor’s commission, changes in escrow or adjustments to pro-rated payments of taxes, utilities and the like are not eligible. Only three things can reset the 72 hour clock:
- APR increases more than one-eighth of a percentage point for fixed rate loans or more than a quarter of a percentage point for adjustable rate mortgages.
- A prepayment penalty is added to the loan conditions.
- Loan proceeds change such as moving from a fixed rate loan to an adjustable rate loan or an interest-only mortgage.
Just two closing documents among many others
No doubt you will see many other documents when closing the loan. Lots and lots of them.
But these two legally binding and mandatory documents complete the loan process: the loan estimate comes after you submit an application to a lender, and the closing disclosure form arrives when you approach the finish line. to get a loan.