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Are Mortgage Loan Estimates Accurate?

Mortgage loan estimates can be a valuable tool when house hunting. However, are they always accurate? Here we’ll take a look at what factors can influence the accuracy of a mortgage loan estimate and what you can do to ensure you’re getting the most accurate information possible.

Are mortgage loan estimates accurate? Mortgage loan estimates are designed to give borrowers a rough idea of how much their loans will cost. However, because lenders use different methods to calculate mortgage rates, these estimates can be inaccurate. Borrowers should always contact multiple lenders to get the most accurate rate quotes before making a decision.

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A Mortgage Loan Estimate Is a Document Regulated by the Law

No matter if you choose Charles Schwab and Rocket Mortgage partnership or Angel Oak, the document has to follow the format issued by the Consumer Financial Protection Bureau (it consists of three pages and paragraphs follow a strict order). If you are unsure whether a certain estimate is valid, you can visit the Bureau’s website, download the template and compare the two.

A Loan Estimate Should Give a Close Number to What the Final Price Will Be

As the name suggests, it is just an estimation. However, the law states that the final price can differ from the initial estimation by a maximum of ten percent. Hence, a person should know what to expect immediately. Of course, the client has to provide certain information in order to get a precise estimate, and whether you choose Zillow mortgage company or E Mortgage Capital, the following will be required:

  • Financial status,
  • Social Security number,
  • Real estate address,
  • Approximate value of the property you are interested in,
  • The amount of money needed for the purchase.

The estimations are based upon this information, and if a certain company fails to ask for something stated here, the numbers cannot be accurate.

Estimates Are Accurate When All Important Factors Are Included in the Document

First of all, if you are new to the issues of loans, we would advise you to read a book on mortgages or talk with a broker in order to know how to determine whether the loan estimate is genuine. Here is a brief overview of the content of each of the three pages:

Page 1
Loan TermThe “loan term” section includes the starting amount and interest rate and other things like prepayment penalty and a balloon payment.
Projected PaymentsProjected payments include your monthly fees, taxes, and insurance.
Costs at ClosingCosts at closing refer to the amount of money you will need to finish the purchase of your house.

The most important factor on page one is interest rates. Before the final document is printed and signed, you will discuss interest rates with your lender. You have to make sure that the interest rates you have agreed on and the ones in the documents match since they will affect your budget the most.

Page 2
Loan CostsThese costs depend on the service of the particular lender. These often include origination charges, appraisals, credit score checkups, and surveys.
Other CostsThese include various government fees and taxes, prepaid services, and such.
Calculating Cash to CloseThis refers to the amount of money you will need to provide to the lender in order to finalize the mortgage.

When comparing the prices between two lenders, the “loan costs” is the most important section as it will affect your budget the most. Government fees and cash needed to finalize the mortgage are the same regardless of the lender. Make sure that the lender has performed all services stated in that section.

Page 3
Official InformationOn page three, the official name of the mortgage company and the lender who made a deal with you should be included.
Loan PrincipleThe amount you will have to pay in the first five years.
Annual Percentage RateAll combined costs of the loan that will affect the payment.
Total Interest PercentageThe precise amount of interestthat will have to be paid over the entire loan term.

The final page also contains all potential penalties if you do not honor the appointed schedule. It will also state clearly what can be done in case you decide to sell the property while still paying off the loan (the issue of loan assumption can be negotiated with the lender, but in most cases, you will be obligated to pay everything personally).

Try to Get a Few Estimates From Different Mortgage Companies

If you want to establish a clearer picture of what to expect when applying for a loan, you should have at least two or three different estimations. Keep in mind that estimation should be done within two or three days since the real estate market has a tendency to change quickly. Hence the property value, lender’s interest rates, and such can also be affected by the market trends. The most important things to compare are interest rates and how they affect your future payments.

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Online Calculators Exist as Well, but They Are Not So Accurate

Many renowned mortgage companies offer free online calculators where you can enter all the needed information and get an estimate. However, these calculators often don’t follow the current trends (they are not being updated on a daily basis,) and these estimates can differ completely from the ones you can get on the official hard copy document.

The Help of Professional Brokers Is Always Valuable in This Situation

The issue of mortgage loans is unknown to many people, and yet if you want to buy real estate, it has to be faced directly. If this is your first experience, it is advisable to hire the services of a trustworthy mortgage broker. In this way, you will be sure that the estimate is genuine and that your credit score has been utilized to its full potential.