These parts of your Loan Estimate are the key to getting the best deal.
Posted by Joelene
Fri 16 April 2021
Alright, you’re shopping for a home and you’re super keen to get a kick-ass Purchase-Ready Approval to show off to realtors so you can get your dream place.
But first comes the boring (kind of important) stuff — the Loan Estimates.
Yeah, we don’t love ‘em either.
But Loan Estimates are actually pretty handy for comparing lenders and finding the best one to lock down a 15-30 year relationship with (hopefully less with a smart refi in the future).
If figuring out how to read an LE seems like too much work to bother with, don’t worry about it — we did the tough work for you, and listed it into bite-size pieces.
Here are the digestible deets.
Let’s kick things off at the very beginning.
We’ve touched on how important LE’s are before, and especially making sure things like, ya know, your name and address are correct.
It sounds eye-roll worthy but seriously, scan your eyes to the very top of the first page and check the following is all a-okay.
- Your full name and address (especially the spelling of your name, if you go ahead with this lender you don’t want a home loan in the name of Denis with one n, not two).
- The loan term, purpose, product, and type are all what you enquired about. There’s a biiiiiiig difference between a 30-year and 15-year loan term.
- If your rate is locked. Not all lenders do this automatically, but it should be on there if they said they would.
Now that you know everything’s above board and there are no incorrect Denises floating about, make sure these next three big players all make sense:
- Loan Terms. Are the loan terms what you discussed, or is it all news to you? Make sure these are what you want because if you move ahead, they’ll be staying put.
- Projected Payments. This is the summary of what you’ll pay each month. It’s made up of your Principal & Interest + Mortgage Insurance (if applicable) + Estimated Escrow (if applicable).
- Costs at Closing. This is the cash you’ll need to put down at closing in order to officially be a homeowner! Hooray for finally being able to nail stuff into walls! This number might not make any sense right now, but turn the page and it’ll all be explained (by us).
Figure out the costs, then get comparing.
So you might be looking at a pretty chunky figure under ‘Costs at closing’ and currently freaking the F out.
It’s a good thing the Closing Cost Details are all listed diligently. It’s an even better thing we’re here to explain them because we all know those lists are still hella super confusing.
Here’s the breakdown.
- Loan Costs (A+B+C). The next three sections are all the costs that go into getting the loan, so they are also the most important sections to look at when you’re comparing LEs and lenders. Take a look at these next areas to see if you’ve got a good deal, or you’re being swindled.
- Other Costs (E+F+G+H). Don’t glaze your eyes over this section, it includes the taxes, premiums, and insurance you’ll need to pay. Your main job here is to double-check these are accurate, or you could be stuck paying too much.
- Total Closing Costs (J). This is where you get the total of all the above costs put together. If you’re nabbing any lender credits to get lower closing costs and higher interest rate, check it’s listed here.
- Calculating Cash to Close. If you’re reading this yelling ‘but the total closing costs are so much cheaper than what the ‘Estimated Cash to Close’ told me earlier!’ you’d be right. But that’s because your cash to close includes everything you’ll pay. You still have to add in your down payment, take out any deposit you’ve already made, and minus any of those sweet lender credits we just mentioned.
Now, are things looking a little less like Heart Attack City?
It’s all in the final details.
If you’re looking to go lender shopping, those lender costs we just mentioned are the numero uno numbers to get started with.
The next ones are found on the last page of your LE.
Look for the big table labeled ‘Comparisons’ for the numbers to do, well, just that.
These figures will give you a good look into the future of your loan with that lender and take you through:
- How much you might have paid off in principal in 5 years
- What the APR rate is (not the interest rate)
- How much in total you’ll pay in interest over the course of your loan.
Take a deep breath (or a sip of your favorite drink) before you look at that one.
The differences in the comparisons and the lender costs between LEs will be the guiding points that’ll lead you to a home loan haven where you can spend less time and cash on your loan, and more on that ceramic fish feature wall you’re planning.
Don’t listen to your Aunt Sherry, it’ll look great.