As a homebuyer, you know you’re going to face closing costs when you sign the final paperwork for your new home. However, in order to know exactly how much you’ll be spending on closing costs, you’ll need to look carefully at the loan estimate you get from your lender.
But what is a loan estimate, and can it change before you close?
What is a Loan Estimate?
A loan estimate, which replaces the good faith estimate that lenders were required to give potential borrowers who applied for loans before October 3, 2015, is your lender’s list of the costs they estimate you’ll pay on closing.
Lenders are required by law to give you a good faith estimate within three business days of receiving your application or other information. The only fee a lender can charge prior to giving you a loan estimate is a credit check fee – they can’t charge you anything else until they’ve given you the estimate and you have indicated that you want to proceed with the loan.
You can – and should – shop around for the best mortgage terms. Getting loan estimates from multiple lenders is a good idea, because it can give you a snapshot of what each lender is offering you and give you the opportunity to make the most informed decision.
What Does a Loan Estimate Include?
A loan estimate includes estimates of:
- Your interest rate
- Monthly payments
- Total closing costs
- Costs of taxes and insurance
- How the interest rates and payments may change in the future
Your loan estimate will also give you information on whether the loan has special features, such as early repayment penalties or negative amortization.
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