Our new Loan Estimate makes shopping for a mortgage easier than ever.
The new form is a part of our Know Before You Owe mortgage disclosure rule that is making the mortgage process work better for you.
The Loan Estimate uses clear language and design to help you understand the key features, costs, and risks of a loan offer you’ve received from a lender. The Dodd-Frank Act directed us to integrate two current forms consumers receive when applying for a mortgage: the Good Faith Estimate and the Initial Truth-in-Lending disclosure. The existing forms were developed by two different federal agencies under two different statutes.
We tested the Loan Estimate around the country, improved the design, and retested to see how effective we were. Starting in 2011 we took our proposed Loan Estimate on the road, gathering feedback to create our final Loan Estimate. We saw that people used the Loan Estimate to make trade-offs among closing costs, interest rate, and payments based on their personal situations. You can read more about this testing and its results in our 2012 report.
After we proposed the Loan Estimate, we did more testing. Here’s what we found:
- Using the Loan Estimate, 99 percent of consumers tested could identify their loan amount, compared with 61 percent of those using the existing forms.
- Of consumers tested, 90 percent could say when the interest rate could change when using the Loan Estimate, up from 81 percent of people using the existing forms.
- When we asked whether settlement charges had changed from the Loan Estimate to a corresponding Closing Disclosure (our new form that updates the HUD-1 and Final Truth in Lending disclosure), far more people accurately noted changes with the new forms than with the current forms.
In January 2015, we released a report that found almost half of borrowers seriously consider only a single lender or broker before deciding where to apply for a mortgage. Our research showed that rates for a 30-year fixed rate conventional loan vary by more than half a percent. Getting a cheaper rate on a mortgage by that much means that borrowers who shop around can save money on their mortgage. The Loan Estimate is a great tool to help you shop around to find the best deal on your mortgage. You should get Loan Estimates from at least three lenders and compare them to find the loan that’s best for you and your family.
Remember, you are in control of the process and can pick the deal you decide is best. The new design makes it easier to compare your Loan Estimates to determine which lender is making the best offer. Requesting a Loan Estimate from multiple lenders is easy. You only have to provide the six key pieces of information:
- your name,
- your income,
- your social security number (so the lender can pull a credit report),
- the property address,
- an estimate of the value of the property, and
- the loan amount you want to borrow.
Although you’re not required to provide additional financial documents in order to get a Loan Estimate, it’s a good idea to share what you have with the lender. The more information the lender has, the more accurate your Loan Estimate will be.
While our new forms are easier to understand, the mortgage process can be confusing and filled with complex terms. To help you navigate we’ve created a set of resources to help.
- Interactive sample Loan Estimate – Want to know where to find a particular fee, or what your estimated monthly payment will be? This interactive resource helps you understand the form. We’ve also made another for the Closing Disclosure. These resources guide you through the forms by highlighting key information and defining terms.
- “Owning a Home” – This suite of tools and resources takes you through the process of buying a home. Here you will get detailed explanations of how to go about getting a mortgage and what to consider when making decisions. You’ll also find tools and resources to help you learn more about your options, make decisions, and prepare for closing.
- “Your Home Loan Toolkit” – This booklet has worksheets and conversation starters to help you navigate the mortgage process. You can fill it out on your computer or print a copy from our site.
- Find a Housing Counselor – Housing counselors approved by the U.S. Department of Housing and Urban Development (HUD) can offer independent advice about whether a particular set of mortgage loan terms is a good fit based on your objectives and circumstances, usually at little or no cost to you. Find a housing counselor near you with our search tool.
Learn more about the Loan Estimate at consumerfinance.gov/knowbeforeyouowe.
Stay tuned to our blog as we explain other aspects of the Know Before You Owe mortgage initiative, including an in-depth look at the Closing Disclosure.
This article by David Friend was distributed by the Personal Finance Syndication Network.