Buying a home
How to read a Loan Estimate
A section-by-section walkthrough of the three-page Loan Estimate form, so you can understand your loan terms, closing costs and cash to close, and compare lenders with confidence.
When you apply for a mortgage, the lender has to give you a Loan Estimate within three business days. It's a standard three-page form, so every lender's version looks the same. That's the point: you can lay two side by side and compare them line for line. Here's how to read it.
Page 1: the big picture
The top section shows who you are, the property, the sale price, the loan term (for example, 15 or 30 years), the purpose (purchase or refinance), the product (fixed rate or adjustable) and the loan type (conventional, FHA, VA or other).
Look for "Rate Lock." It tells you whether your interest rate is locked and, if so, until when. If it isn't locked, the rate can change before closing.
Loan Terms lists the loan amount, interest rate and monthly principal and interest. Next to each one is a yes-or-no answer to "Can this amount increase after closing?" It also tells you whether the loan has a prepayment penalty or a balloon payment. If any of these say "YES," ask your lender to explain exactly how and when.
Projected Payments shows your estimated total monthly payment over time, including mortgage insurance (if any) and estimated escrow for property taxes and homeowners insurance. It also shows which of those costs are included in escrow.
Costs at Closing gives two key totals:
- Estimated Closing Costs: the total of loan costs and other costs, minus any lender credits.
- Estimated Cash to Close: what you'll need to bring to closing, including your down payment.
Page 2: closing cost details
This page breaks those closing costs into lettered sections.
| Section | What it covers |
|---|---|
| A. Origination Charges | What the lender charges to make the loan, including any points you pay to lower the rate |
| B. Services You Cannot Shop For | Services the lender picks, such as the appraisal and credit report |
| C. Services You Can Shop For | Services where you can choose the provider, often title and survey work |
| E. Taxes and Other Government Fees | Recording fees and any transfer taxes |
| F. Prepaids | Items paid ahead, such as the first year of homeowners insurance and prepaid interest |
| G. Initial Escrow Payment at Closing | The starting balance for your escrow account for taxes and insurance |
| H. Other | Anything else, such as optional owner's title insurance or HOA fees |
Sections A through C add up to Total Loan Costs (D). Sections E through H add up to Total Other Costs (I). Together they make Total Closing Costs (J), after any lender credits.
The Calculating Cash to Close table then walks from your closing costs to your cash to close, accounting for your down payment, deposit (earnest money), seller credits and other adjustments.
Tip: when you compare lenders, look closely at Section A. It's the part most directly controlled by the lender.
Page 3: comparisons and fine print
Comparisons gives three numbers designed for side-by-side shopping:
- In 5 Years: how much you'll have paid in the first five years, and how much of that went to principal.
- Annual Percentage Rate (APR): your costs over the loan term expressed as a yearly rate. It's usually higher than the interest rate because it includes certain fees.
- Total Interest Percentage (TIP): the total interest you'd pay over the life of the loan as a percentage of the loan amount.
Other Considerations covers the appraisal, whether the loan can be assumed by a future buyer, homeowners insurance requirements, late payment terms and the lender's servicing plans.
Questions worth asking
- Is my rate locked, and until when?
- Which costs on this estimate could change before closing, and by how much?
- Am I paying points? What would the estimate look like without them?
- Which services in Section C can I shop for, and do you have a list of providers?
- What's included in my escrow, and how was the estimate for taxes and insurance calculated?
What happens next
The Loan Estimate is an estimate, not a final bill. At least three business days before closing, you'll get a Closing Disclosure with the final numbers in a matching layout. Compare the two side by side and ask about anything that moved.
The Consumer Financial Protection Bureau has more homebuying explainers at consumerfinance.gov.
Got a Loan Estimate and want someone to walk through it with you? Send KT a note.
General information for Longview-area readers, not financial, legal or tax advice. Every situation is different; talk with a licensed professional about yours.
