It’s more important than ever to shop around, especially since the costs related to homebuying continue to increase. The Loan Estimate, introduced in October 2015, is intended to ease that process for borrowers who want to make the mortgage transaction more affordable.
The Loan Estimate is given to you within three business days of turning in a mortgage application. It outlines the various terms attached to the loan, including your interest rate, estimated monthly payments and the cash you need to close.
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“The (Consumer Financial Protection Bureau’s) goal with these new disclosures, including the Loan Estimate, is to help consumers better understand the mortgage process, assist with comparison shopping and prevent surprises at the closing table,” says Chris Polychron, 2015 president of the National Association of Realtors.
Page 2 of the Loan Estimate gives you an idea of how much it may cost to close on your mortgage, including the origination fees charged by the lender and other estimated closing costs.
The first two sections on Page 2 — sections A and B — are the most important for borrowers to understand, says Vicki Bott, past senior vice president of credit strategy for Wells Fargo Home Mortgage. Here, you’ll find the estimated lender fees, also known as “origination charges,” and costs for third-party services that the lender will secure as part of the loan transaction.
You cannot shop around for the services listed in Section B. The amounts may vary by lender. These costs include the appraisal, credit report, flood certification and tax services.
Both sections answer the question: “What costs is this specific lender I’m shopping with charging?” Bott says.
Section C details the costs over which you have the most control — you can comparison-shop for the services listed.
“There is opportunity for the borrower to go out into the market and determine if there is a vendor or company who may provide a more competitive fee,” Bott says.
One major service you can and should shop around for is title insurance, though where you live may determine whether you’re able to do so. For example, in Texas, the cost of title insurance is regulated, so all title companies charge the same price.
You can also shop around for the home inspection, survey and homeowners insurance.
Your lender is required to give you a list of approved providers who can deliver the services for which you can shop, but you don’t have to stick with only those vendors, Bott explains. If you find a company that is not on the list but has a more competitive rate, check with your lender to see if that company meets the required qualifications to provide the requested service.
The lender’s fees are believed to be fixed but there could be some wiggle room, Polychron says.
“Origination fees vary based on a number of factors, but may be negotiable both as a dollar amount or an offered interest rate.”
One way to negotiate the lender fees is to ask if any of the fees may be waived, such as the application fee.
Your lender may also offer you a credit to offset some of your closing costs, but it comes with a price, usually in the form of a higher interest rate on your mortgage.
Remember that you’re also free to choose your lender; don’t just settle on one without weighing your options.
“Borrowers should consult with a number of lenders to see what they all have to offer before making a decision,” Polychron says.