In today’s blog, we’re going to be discussing page three of the loan estimate. This is part three of our three-part series called Keys to Understanding the Loan Estimate. (For part one, click here, and for part two, click here.)
Page three of the loan estimate consists of a summary and house cleaning items, so to speak, that your lender must tell you about your loan. The CFPB encourages a comparison that the lender must give you, as well as some other considerations as to what your lender plans to do with your loan, and other items as well.
Comparisons
The comparisons sections is an excellent little snapshot. What’s going to happen? What is the state of this loan if I go through with it in five years? How much interest am I going to pay? Principal, mortgage, and insurance? The cost? All that added together is going to be a significant number, and that’s a good number to be comparing. Your lender should be able to calculate that very easily.
The annual percentage rate is something I even struggled with understanding after being in the business for many, many years, but I’ll break it down. Simply put, the APR is not your interest rate. It has to do with fees associated with your loan that get factored into the cost of your credit over the term of this loan. And that is why the interest rate you’re getting, the note rate, is typically lower than your annual percentage rate because it has to do with the fees assessed on your loan.
And the last one here, I’m not even really sure what good this number is, but it’s kind of a scary number. Your total interest percentage, the TIP, 69.45% in this scenario, represents the total amount of interest that you will pay over the loan term as a percentage of your loan amount. I’m not sure why that is even important, but it’s there.
Other considerations
Appraisals
Some other considerations for you are your appraisals. The only thing I would say here is that check if you need an appraisal. I know it says we may order an appraisal to determine the property’s value, but there are so many loans out there that don’t require an appraisal. The AUS, or automated underwriting system, may give you what’s called a property inspection waiver. I’ve seen lenders, and I’ve accidentally done it myself, get a property inspection waiver when they ordered an appraisal. If you don’t need one, you don’t need one, so make sure that you check with your lender to ensure that you do not need an appraisal.
Assumption
The assumption will tell you if your loan is assumable. Really only VA and FHA loans are assumable nowadays.
Homeowner’s Insurance
You have to have homeowner’s insurance.
Late Payments
If your payment is more than 15 days late, you get a late fee.
Refinancing
Refinancing this loan will depend on your future financial situation. Basically, if you want to refinance, you will need to qualify again. Unless again, it’s a VA loan, and there is no qualifying to do, although rules may change. I’ve seen it happen.
Servicing
Probably the most important thing is whether the lender intends to service your loan. I will tell you, most lenders do not service their loans. You will typically see an “x” in the second box, “we intend to transfer.” Some lenders that sub-service, or almost all lenders, don’t have an internal servicing team. They have a company, a third-party, service it for them. They still must meet all the requirements of servicing, so they are technically the servicer or servicing the mortgage.
Sometimes I’ve seen that box checked when it shouldn’t be. And then, of course, you will get a notification after the loan closing saying, “your loan has been sold.” So even if you see a check box saying, “we intend to service your loan,” you may still get a letter from Fannie Mae or Freddie Mac saying, “hey, congratulations, your loan just got sold to us.” Well, guess what? All loans get sold, right? Some pools and mortgages get sold, but the servicing is retained. So, this has to do with the servicing of your loan.
That is page three of the Loan Estimate. If you found this content valuable, please continue following our blog and consider subscribing to my YouTube channel for more mortgage content.
Take care and have a wonderful day.