How To Compare Between Loan Estimate Versus Closing Disclosure

Gustan Cho Team
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How To Compare Between Loan Estimate Versus Closing Disclosure

This BLOG On How To Compare Between Loan Estimate Versus Closing Disclosure Was UPDATED On April 20th, 2019

By Gustan Cho

Once home buyers decide to purchase a home, they need to select a mortgage lender to qualify for a loan program:

  • Buyers will initially speak with several mortgage lenders
  • Some will tell buyers they do not qualify due to their lender overlays while other may qualify buyers
  • Not all lenders have the same requirements on FHA, VA, USDA, Conventional Loans
  • Buyers will then choose a lender who pre-approves them and will sign paperwork
  • Borrowers need to understand the difference between Loan Estimate Versus Closing Disclosure

Understanding Loan Estimate Versus Closing Disclosure

Two important documents borrowers need to understand are the following:

  1. Loan Estimates (LE)
  2. Closing Disclosures (CD)

There are differences between Loan Estimate Versus Closing Disclosure.

  • The main difference between Loan Estimate Versus Closing Disclosure is that the LE is an estimated figure
  • The figures on the CD are the actual figures
  • Another difference between Loan Estimate Versus Closing Disclosure is that the Loan Estimate has inflated figures (overly disclosed) where the Closing Disclosures are the actual figures

Difference In Figures Between Loan Estimate Versus Closing Disclosure

The Loan Estimate replaced Good Faith Estimate 

  • In general, figures in the Loan Estimate are overly disclosed and are higher than the Closing Disclosure
  • The reason being is because mortgage lenders need to disclose potential fees and costs that borrowers may incur
  • Whether they are lender costs or third-party fees such as title charges, recording fees, inspection fees, lenders do not have the true costs and fees at this early stage of the mortgage process
  • So what lenders need to do is overlay disclose fees
  • If lenders under disclose by more than 10%, the lender is liable for the shortage even though the fees may be outside third-party charges
  • This is the reason why some loan estimates may seem extremely high
  • On the flip side, all fees on the CD are the right figure. Once the initial closing disclosures are prepared, it gets sent out to the title company
  • The title company will go over the actual fees of buyers and sellers and ultimately get the final figures back to the lender
  • The cash to close by the borrower will be stated on the final Closing Disclosure

When borrowers get their Loan Estimate and disclosures after they apply for a mortgage, they should not be alarmed with the high figures stated on the LE. Most of them are junk fees and again, most fees and costs listed on Loan Estimate is overly disclosed.

Mortgage Rates On Loan Estimate Versus Closing Disclosure

The interest rate on the Loan Estimate will be higher and here is the reason why:

  • Mortgage Rates on Loan Estimates are floating rates and not locked
  • The loan officer will disclose the highest rate the lender can charge
  • Borrowers will be qualified at the highest rates
  • If a borrower is qualified at a lower rate and the actual rate is higher than the rate stated on the loan estimate, the whole loan package needs to be re-underwritten
  • If the current going rate is 4.5%, the loan officer may list 5.0% on the loan estimate
  • The mortgage rate on the Closing Disclosure is the actual rate
  • Closing Disclosures are not prepared unless the mortgage rates are locked

Do not be alarmed with the Loan Estimate. Loan Officers should carefully go over line item per line item on the LE with their borrowers.

Mortgage Process And Disclosing Loan Estimate Versus Closing Disclosure

The Loan Estimate is disclosed within three business days of loan officer taking a mortgage loan application. The Closing Disclosure needs to be disclosed three business days prior to the closing date. Most mortgage application packages and disclosures are over 50 pages.

  • It is probably the largest official application package borrowers will ever encounter and need to sign
  • Many first time home buyers or those who never applied for a mortgage loan often wonder whether signing these mortgage documents will obligate them to commit to a mortgage
  • However, borrowers can cancel any mortgage transaction up to the date of closing
  • Prior to signing documents and disclosures, borrowers will need to submit their complete financial package to loan officer such as the following:
    • two years tax returns
    • two years W-2s
    • 60 days bank statements
    • most recent paycheck stubs
    • copy of drivers license
    • copy of social security card
    • other necessary documents pertaining to their mortgage loan application
  • It can be pretty scary to sign and date the application package and all of the disclosure
  • It feels like signing one’s life away
  • The good news is that there are strict federal and mortgage regulations that protect borrowers
  • Borrowers can always cancel a mortgage until the day of closing with no fees incurred

The Mortgage Application Process

There is a lot of work for lenders to process and underwrite each individual application and run it through the mortgage process until it is complete and closed:

  • Federal and state regulations dictate lenders cannot force borrowers to close on home loans
  • It is the consumer’s right to be able to cancel the mortgage application at any time during the mortgage process
  • Borrowers can actually cancel mortgage application until the date of the closing and walk away without being obligated to pay any fees
  • Borrowers can also transfer their application to a different lender
  • Who pays the loan originator,  processor, underwriter, and support staff? 
  • Not Borrowers
  • Lenders get paid once the loan closes
  • If the loan does not close, the mortgage company does not get paid
  • Lenders are different than attorneys
  • They cannot charge borrowers for the work already performed
  • Lenders and their staff cannot charge borrowers any fees except the appraisal fee
  • If during the mortgage process, borrowers decide they are not happy with the performance of the mortgage company who is underwriting mortgage they can walk away from the mortgage process and not be liable for any fees

Home Purchase And Home Refinance Mortgage Loans

On a home purchase mortgage loan transaction, the mortgage company funds the mortgage loan on the date of the closing.  Once borrowers sign the mortgage closing documents and the Closing Disclosure at the title company, the lender will send the wire to the title company. Funds get dispersed and the transaction is done.

On a refinance mortgage transaction, the mortgage loan gets closed. But funding is delayed for three business days due to the 3 day right of rescission.  The right of rescission is the right for homeowners to cancel a transaction. Refinance mortgage loan borrowers has 3 business days to cancel a refinance mortgage transaction after signing the closing documents and CD.  Once the 3 days have passed, the mortgage loan is funded.

Mortgage Borrowers who need to qualify for a mortgage with a direct lender with no mortgage overlays on government and conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

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