A loan estimate is an important document that would-be homebuyers receive when applying for a mortgage. In general, the three-page document estimates everything that a homebuyer needs to pay for the entire loan. While loan estimates are designed to help homebuyers better understand the mortgage loan terms, there are some instances when the final Loan Estimate may be higher than what was originally quoted.
As someone shopping for a home mortgage, it’s critical that you know these factors that can increase a loan estimate:
- Changing the kind of loan like moving from an adjustable-rate mortgage to a fixed-rate mortgage.
- The homebuyer reduces the amount of down payment.
- The appraiser gave a lower rating than expected on a property that the person wishes to buy.
- The credit score of the homebuyer has changed after taking a new loan or failing to pay another loan on time.
- A lender could not verify the homebuyer’s information like other income, overtime pay and bonus.
- The interest rate on the loan was not locked and points or lender credits changed when the rate was locked.
Basically, a homebuyer/borrower who applies for a mortgage gets a loan estimate from the lender within three working days after submitting his/her complete name, source(s) of income, Social Security number, property address, an estimate of value of the property, and the amount the borrower plans to take. Although lenders are not required to ask for supporting documents to verify the information provided by the borrower, the Consumer Financial Protection Bureau (CFPB), however, said lenders can provide a much accurate loan estimate if they are given with more information.
What comes next if you intend to proceed with your mortgage application?
Expressing an intent to proceed means that you’ve decided to move forward with your mortgage application a few days after receiving the initial loan estimate. You’ll get a revised loan estimate once you express your intent to proceed with the lender of your choice when important information changes. If you believe that some figures like interest rates should not have increased from the initial loan estimate that you received from the lender, you need to ask why you’re getting a revised loan estimate. You also need to get an explanation on how the new quote and its new features will be different from what you originally expected.
Aside from your financial situation, you may want to let a lender know the loan terms you’re interested in, the amount you can pay for down payment, or any payment arrangements you prefer. Moreover, you may also want a lender to know if you’re eligible for any government-backed loans like FHA, VA loans, and USDA loans.
Keep in mind that loan estimates only give you an idea what loan terms lenders can offer you based on the initial information you have provided if you’ll choose them. A loan estimate doesn’t mean you’re already approved or denied of a loan application. It’s often a good idea to get in touch with at least three mortgage lenders so you can compare their loan estimates. Loan estimates may increase from the first one you receive depending on some circumstances, and it’s important to ask questions if you think you’ll pursue with your loan application.
A professional loan advisor may give you insights about loan estimates
In this situation that you still have questions about loan estimates, a professional loan advisor may give you invaluable insights especially if you’re looking forward to fulfilling your homeownership dream.