What Is The Loan Estimate And Closing Disclosure
This Article Is About What Is The Loan Estimate And Closing Disclosure
The Loan Estimate also referred to as the LE, is a mortgage disclosure that needs to be disclosed to all mortgage loan applicants that apply for home loans.
- The Loan Estimate is an extremely important document
- It needs to be completed correctly
- Otherwise, the mortgage application is null and void and needs to be re-signed and all mortgage documents need to be re-disclosed
- The Loan Estimate needs to be disclosed to both home purchase borrowers as well as refinance transactions
- The LE can be very confusing and hard to understand to the common home buyer
- The government created the Loan Estimate with the intention of making it a tool for borrowers to be able to shop and get the best deal on their mortgage loans
- Unfortunately, many mortgage industry experts feel that the Loan Estimate is too confusing
- They feel it defeats its purpose and does not help borrowers in shopping for the best loan
- This because most lenders over disclose the Loan Estimates in the third party estimated charges
- Unfortunately, this is the law of the land
Every lender needs to abide by the rules in order to get the mortgage loan done and closed.
Understanding The Loan Estimate
When borrowers formally apply for a home loan, the loan originator will need to disclose several disclosures which one of the most important mortgage disclosure is called the Loan Estimate.
- The LE is a line-item breakdown of the estimated closing cost which is associated with the home purchase and/or refinance transaction
- With the home purchase loans, the Loan Estimate will list an itemization of all charges
- It will itemize potential charges whether it is from the lender and/or third-party charges and fees borrowers may encounter
- Even if borrowers do not encounter the fees and charges, lenders need to disclose it even if the lender has nothing to do with it
For example, here is a case scenario:
- a well and septic inspection estimate needs to be disclosed
- this is the case even if the subject property has a brand new well and septic system
- this is because in the event they may want a well and septic inspection
If it is not listed on the Loan Estimate, the lender is liable to pick up the tab even though it has nothing to do with the mortgage loan.
Overdisclosing The Loan Estimate
Most lenders will overly disclose the fees and costs of third-party charges:
- This is because the fees and cost is under-disclosed and it goes over 10% of the disclosed amount, the lender is liable to pay for the overage
- Over disclosing will protect the lender
- But then the Loan Estimate is inflated where it confuses the borrower that the lender is overcharging
- Remember that the Loan Estimate is just an estimate
The Loan Estimate is very complicated and hard to understand. This is especially for first time home buyers and even for seasoned homeowners and real estate investors.
The Good Faith Estimate Replaced By Loan Estimate
The Old Good Faith Estimate has been revised by the United States Department of Housing and Urban Development, also commonly known as HUD, after the real estate and mortgage collapse of 2008.
- HUD revision of the Good Faith Estimate went into effect on January 10, 2010
- The purpose of the Good Faith Estimate revision was to simplify the GFE
- Instead of simplifying the one page GFE, it extended it to a three page more complicated form
- The revised GFE implemented more figures and added more fine print
- Thus, it made the new revised Good Faith Estimate much harder to understand
- The Good Faith Estimate needed to be disclosed to all mortgage loan applicants within 3 days of completing a mortgage loan application
- Most mortgage lenders disclosed the GFE the day they take the mortgage loan application so there are no screw-ups
The CFPB ultimately replaced the old Good Faith Estimate with the all-new Loan Estimate (LE).
Is The Loan Estimate A Negotiation Tool?
Is The Loan Estimate A negotiation tool? The federal government created and implemented the Loan Estimate to serve as a negotiation tool and for consumers to shop for the best mortgage rates and terms.
- Unfortunately, this is not true
- This because most Loan Estimates are overly inflated and over disclosed
- Many borrowers still do not understand What The Loan Estimate Is
- Just because consumers have a low ball Loan Estimate does not mean they are getting the best deal
- There are lenders that low ball a GFE to make the mortgage shoppers think they are getting the best deal
Shoppers need to understand that lenders have absolutely nothing to do with third-party charges they need to disclose.
Examples Of Third-Party Charges
Third-party charges are items the following:
- title charges
- attorney fees
- transfer stamps
- recording charges
- other costs associated with the purchase and/or refinance of a home loan
- Remember consumer can shop for third-party vendors
There are shady lenders where they will really low ball the third party charges to make consumers think that they have the lowest closing costs.
What Are My Actual Closing Costs?
Borrowers’ actual closing costs of mortgage loans will definitely be lower than those itemized on Loan Estimate.
- Actual closing costs will be revealed on the Closing Disclosure (CD)
- Closing Disclosure will list actual closing costs
- All of the junk fees and charges from the Loan Estimate will be eliminated
The line item that states CASH TO CLOSE will be the amount borrowers need to bring to the closing table on a home purchase closing.
Qualifying For A Mortgage With A Lender With No Overlays
Home Buyers thinking of buying a home or refinancing the current home and need a pre-approval, click APPLY NOW to get started in the pre-approval process. All of our pre-approvals are fully underwritten and signed off by our mortgage underwriters. Please contact Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected]
October 3rd 2015 Update On The Good Faith Estimate: Replaced By The Loan Estimate
The Consumer Financial Protection Bureau has replaced HUD’s The Good Faith Estimate with the new CFPB Loan Estimate which went into effect on October 3rd, 2015. Since the Loan Estimate went into effect on October 3rd, 2015, there has been many issues and problems due to the three-day waiting period to close on a home loan after a clear to close has been issued. We will cover more on this topic in a future blog article on Gustan Cho Associates Mortgage News.