What information does the loan estimate provide to buyers under required disclosures law?

By Amanda Oboza, Communications Director, Greater Lansing Association of REALTORS®

As consumers, we like to be well-informed before we make any purchase. From small items like food and clothing, to big-ticket items like electronics and automobiles, we want to know everything we can about a product or service before we spend our hard-earned money.

A home purchase should be no different, especially because it’s one of the largest purchases you’ll ever make. While shopping for a mortgage can be overwhelming, disclosure rules have adapted over the years in an effort to streamline the process and help buyers make truly informed decisions.

That’s where Loan Estimates and Closing Disclosures come in. These documents essentially provide buyers with all the details of their mortgages before they formally commit. But, these documents are only beneficial if you understand how they work.

The Loan Estimate

The Loan Estimate replaced what was previously known as the Good Faith Estimate (GFE) and Truth-in-Lending (TIL) documents. In 2015, the Consumer Financial Protection Bureau (CFPB) combined these two forms into one, three-page document that details a borrower’s loan terms and closing costs in a simplified manner.

The Loan Estimate explains all the costs associated with your mortgage, including loan terms, projected payments, closing costs, comparisons, and other considerations. For instance, if the loan has special features, such as early payment penalties or increases in mortgage loan balances, the form will include those details.

“Lenders are required to provide a loan estimate to borrowers within three days of receiving a mortgage application that includes a property address,” said Tim Whelan, home loan specialist with Churchill Mortgage. “Keep in mind this document is not an approval or denial of a loan, but rather an explanation of estimated costs and fees associated with obtaining a new home with a mortgage.”

According to the CFPB, all lenders are required to use the same standard Loan Estimate form, making it “easier for you to compare mortgage loans so that you can choose the one that is right for you.”

But, Whelan cautions that while some details of the loan estimate are set in stone, others may change slightly.

“My team and I make a commitment to our borrowers that the interest rate and closing costs will be equal to or less than what we disclose on the loan estimate,” said Whelan. “That is not something that is required by law, so it’s really important that consumers work with a lender they trust who takes the time to educate them on the details of this document and the total cost of the loan.”

The CFPB offers a walk-through of the Loan Estimate on its website (www.consumerfinance.gov), and lists important questions to ask.  Some of these include: Does your loan have a prepayment penalty? Does your estimated monthly payment match your expectations? Is the estimated cash to close what you expected?

Whelan suggests also asking questions such as: Is the interest rate locked? Which of these costs is guaranteed not to increase? Are these conservative estimates? Can I expect my final numbers to be equal to or less than these figures?

The Closing Disclosure

Once you’ve selected a lender and a loan program, the transaction will move forward. Homebuyers will see detailed loan information again, three business days before the official closing, in the Closing Disclosure. In order to simplify the process, the CFPB now uses this form as a replacement for the Final TIL Disclosure and HUD-1 Settlement Statement.

The Closing Disclosure is a five-page document that includes many of the same terms as the Loan Estimate, but with much more precise details regarding the finalized numbers. Within the Closing Disclosure, borrowers will find their loan terms, projected closing costs, the amount of cash required to close, a summary of the transaction, final loan calculations, disclosure information, and any additional information about your mortgage.

Whelan says the numbers you see should be close to what you saw in your Loan Estimate — preferably equal to or less than —  but if you happen to find any major discrepancies you should connect with your lender right away to get an explanation.

“I would also suggest confirming with your lender that these numbers are final, since it’s possible that the copy you received was not the final draft,” he said.

Thoroughly reviewing this document is critical. A recent survey of real estate agents by the National Association of REALTORS® found that half of agents have detected errors on Closing Disclosures.

Whelan says this is why it’s so important to work with an experienced local lender who will be transparent with you through the entire process.

“Most of the time, small changes can be easily resolved before closing,” he said. “But, if the numbers that you were provided up front were underestimated, requiring you to bring more than you expected to closing, it could cause delays or even approval problems.”

If you’re in need of lender recommendations, friends and family can offer great referrals. You can also get a list of local professionals by visiting the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com

What's the relationship between the loan estimate and the closing disclosure?

In what section of a Trid closing disclosure would you find information regarding the loan term?

When must the loan estimate be provided to the consumer quizlet?

Which disclosure is required by Trid?