Loan Estimate And Closing Disclosure During The Mortgage Process

by Mike Gracz

This Article Is About The Loan Estimate And Closing Disclosure During The Mortgage Process

The Loan Estimate And Closing Disclosure are the two most important documents in the mortgage application and approval process.

  • The Loan Estimate is commonly referred to as the LE
  • The Loan Estimate replaced the old Good Faith Estimate (GFE)
  • The Closing Disclosure is commonly referred to as the CD
  • The Closing Disclosure replaced the old HUD-1 Settlement Statement
  • Both the Loan Estimate And Closing Disclosure were created and implemented so consumers can better understand the mortgage disclosures and fee sheets
  • Many thought the older Good Faith Estimate and the HUD-1 Settlement Statement (also known as the HUD-1) was too confusing and hard to understand

In this article, we will discuss and cover the Loan Estimate And Closing Disclosure During The Mortgage Process.

Loan Estimate And Closing Disclosure: What Is The Loan Estimate

The Loan Estimate (LE) is issued by the lender within three days after the mortgage loan applicant completes a mortgage loan application.

  • Included in the Loan Estimate is a list of fees, costs, and potential third-party charges the borrower may incur during the mortgage loan application and approval process
  • The Loan Estimate is mandatory and is required by the CFPB so consumers shopping for mortgage rates and terms is easier and streamlined
  • The Loan Estimate needs to be disclosed within three business days from the date the loan applicant completes a full mortgage loan application
  • The LE states the costs and fees the borrower is expected to pay and will potentially encounter
  • The lender cannot under disclose costs and fees
  • The fees and costs on the initial LE do not have to be an exact figure
  • It can be an estimated figure
  • However, if the loan officer under discloses the numbers on the Loan Estimate by more than 5% percent, the lender is liable for the difference
  • This also holds true of third-party costs and fees
  • Even though the loan officer is not liable for third-party fees and charges, if the loan officer under discloses third-party charges by more than 5% percent, the loan officer is liable for the difference
  • This is the main reason why loan officers will overly disclose the fees and costs on the Loan Estimate

All itemizations on Loan Estimates are the same and/or similar among lenders but the numbers can be different. Not all lenders charge the same costs. Mortgage rates, origination costs, and other closing costs can vary among different lenders. This is why the CFPB requires all lenders to list an itemized list of closing costs and charges so the consumer can compare rates and costs when shopping for a mortgage.

What Is On The Loan Estimate

What Is On The Loan Estimate

The Loan Estimate needs to be disclosed to the borrower no later than three days after the mortgage loan applicant completes a full mortgage loan application (1003).

Some of the important costs and fees that contain on the Loan Estimate are the following:

  • Borrower’s information
  • Loan amount
  • Interest rate
  • Annual Percentage Rate (APR)
  • Monthly payment
  • Closing costs
  • Itemization of closing costs
  • Other charges
  • Third-party charges

The Loan Estimate is three pages long.

NOTE: Loan estimates are not required for home equity lines of credit (HELOCs), reverse mortgages, and manufactured housing loans not secured by real estate properties.

How a Loan Estimate Works

How a Loan Estimate Works

The Loan Estimate will make shopping for a mortgage easier for borrowers.

  • You can compare mortgage rates, origination costs, and closing costs
  • Not all lenders have the same mortgage rates and origination charges
  • Mortgage bankers may have higher rates than mortgage brokers
  • With a Loan Estimate, you can make shopping for rates and terms much easier
  • This is the exact reason why the Consumer Financial Protection Bureau (CFPB) created and implemented the Loan Estimate
  • The Loan Estimate is a simple three-page worksheet with a list of fees, costs, and potential charges on how much it would cost consumers on a particular mortgage loan

In most cases, the fees, costs, and potential charges are overly disclosed on the Loan Estimate because the loan officer does not have the final figures.

Loan Estimate And Closing Disclosure: The Closing Disclosure

The Closing Disclosure form is a five-page form the mortgage lender needs to disclose to the borrower at least three business days prior to closing the home loan. The Closing Disclosure is also referred to as the CD. In August 2015, the Consumer Financial Protection Bureau (The CFPB) has mandated the HUD-1 Settlement Statement be replaced with the easier to read and understand five-page new Closing Disclosure. The CD is the replacement of the old HUD-1 Settlement Statement. The Closing Disclosure lists the final figures for both the homebuyer and sellers. It lists the exact costs of the initial costs and charges listed on the initial Loan Estimate (LE).  Federal law mandates the Closing Disclosure be disclosed three days before the home loan closing. This way, the borrower can carefully review the line items listed on the closing disclosure. Consumers should check and double-check the figures on the final closing disclosure. All costs, fees, and third-party charges will be listed on the closing disclosure. The mortgage interest rate charged, the principal amount, total interest over the term of the loan term, and the annual percentage rate (APR) will be disclosed. If you have any further questions about the content of this article and/or other mortgage-related topics, please contact us at Capital Lending Network, Inc. at gcho@gustancho.com. Or call us at 262-716-8151 or text us for a faster response.

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