Guide

How to read your Loan Estimate

Three pages, one standard layout. Here is what each part tells you and what to copy into your worksheet.

What a Loan Estimate is

A Loan Estimate is a standard three-page form that shows the expected rate, monthly payment and closing costs for a mortgage. Lenders generally send one within three business days after they receive your application details.

It is not an approval and not a commitment to lend. Later, before closing, you will receive a Closing Disclosure. Keep both, and compare the final figures against your estimate.

Page 1: the loan and the monthly payment

• Loan terms. The amount borrowed, the interest rate, the term and whether the rate or payment can change. Check for a prepayment penalty or a balloon payment.
• Rate lock. A locked rate has an expiration date. If it lapses before closing, the rate and costs can change.
• Principal and interest vs. total payment. Principal and interest is only part of what you pay each month. The total also includes mortgage insurance and the escrow amount for taxes and homeowner's insurance. Compare the total, not just the first line.
• Costs at closing. Estimated closing costs and the cash you need to bring.

Page 2: the closing cost details

Page 2 splits costs into lettered sections.

• A. Origination charges. What the lender charges for making the loan, including any points.
• B. Services you cannot shop for. Third parties the lender picks, such as the appraiser.
• C. Services you can shop for. Title and similar services where you may choose the provider.
• D. Total loan costs, which is A + B + C.
• E to H. Government fees, prepaids, the initial escrow deposit and other items.
• I. Total other costs. J. Total closing costs, with any lender credits applied.

The most useful lender-to-lender difference is Section A plus lender credits. Sections B, C and E to H are largely third-party or homeownership costs that often look alike across lenders. Lender credits usually come with a higher interest rate, so a lower net figure is not automatically cheaper over time.

Page 3: comparisons and fine print

• In 5 years. The total you will have paid and the principal you will have paid off after five years.
• Total Interest Percentage (TIP). The interest you would pay over the full term, shown as a share of the loan amount.
• Other considerations. Appraisal, assumption, late payment, servicing and similar terms.
• Signature. Signing usually only confirms you received the form. It does not accept the loan.

Questions to ask each lender

• Is this rate locked, and until what date?
• What exactly is in Section A, and are any points included?
• Are lender credits shown, and what rate would I get without them?
• Which Section C services can I shop for myself?
• Is mortgage insurance required, and when does it end?
• Which items could change before closing?

Source: Consumer Financial Protection Bureau, "Loan Estimate explainer" (https://www.consumerfinance.gov/owning-a-home/loan-estimate/). Used for reference only.