Even if poring over mortgage documents isn’t exactly your idea of fun, one document you should pay special attention to is the loan estimate.
This three-page form is packed with important information about your mortgage, plus the details you’ll need to compare offers from different lenders. Below, we’ll walk through a loan estimate example, showing you page-by-page where to find the most essential information.
Buying a home is likely one of the biggest financial decisions you’ll ever make. While exciting, it can also feel overwhelming, especially when you start receiving stacks of paperwork from lenders. One key document you’ll want to pay close attention to is the loan estimate form.
The loan estimate provides you with important details about the mortgage loan you’ve applied for By law, lenders must provide you with a loan estimate within three business days of receiving your application This standardized form makes it easy for you to compare loan offers from multiple lenders.
In this comprehensive guide we’ll walk through what to look for in a sample loan estimate, decoding this essential mortgage document section-by-section.
What is the Loan Estimate Form?
The loan estimate is a three-page document that discloses key terms of the mortgage loan you’ve applied for, including:
- Interest rate
- Loan amount
- Projected monthly payments
- Closing costs
- Other key loan terms
It provides you with an estimate of what your mortgage will cost based on the information you’ve provided to your lender. The loan estimate form is required by the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).
Having this information upfront makes it easier to shop and compare mortgage offers from multiple lenders. It also gives you time to ask questions and lock in terms that are acceptable to you.
Page 1 of the Loan Estimate
The first page of the loan estimate contains the loan terms, projected payments, and estimated closing costs. Here’s an overview of key details provided:
Loan Information
- Date Issued: This tells you when the loan estimate was sent. Lenders have 3 days to provide this after getting your application.
- Loan Term: The length of the mortgage, such as 15 or 30 years.
- Purpose: Purchase, refinance, home equity loan, etc.
- Product: The type of mortgage, such as fixed-rate or adjustable-rate.
- Loan Type: Conventional, FHA, VA, etc.
Loan Terms
- Loan Amount: The amount you wish to borrow.
- Interest Rate: The rate at which interest will accrue on the loan.
- Principal and Interest Payment: The monthly amount you’ll pay toward the loan principal and interest.
Projected Payments
- Mortgage Insurance: Monthly mortgage insurance payment, if applicable.
- Estimated Escrow: Payment amount for property taxes and homeowners insurance.
- Amount can increase over time: Escrow payments may change annually.
Costs at Closing
- Total Closing Costs: An estimate of all closing fees and costs to finalize the mortgage.
Page 2 of the Loan Estimate
Page 2 of the loan estimate breaks down the closing costs into more detail. Here are the key sections:
Loan Costs
- Origination Charges: Fees charged by the lender to originate the mortgage. May include application fees, underwriting fees, etc.
- Services You Cannot Shop For: Appraisal fees, credit report fees and other services you don’t shop for.
- Services You Can Shop For: Title fees, survey fees and other services you can compare between providers.
- Taxes and Other Government Fees: Recording fees, transfer taxes and other taxes/fees.
Other Costs
- Prepaids: Homeowners insurance premium, mortgage insurance premium, prepaid interest, property taxes.
- Initial Escrow Payment: Funds collected at closing and held in escrow to pay taxes and insurance.
- Other: Real estate agent commissions, home warranty fees, and other required costs.
Calculating Cash to Close
- Total Closing Costs: Total of “Loan Costs” + “Other Costs”
- Closing Costs Financed: Closing costs included in the loan amount.
- Down Payment/Funds from Borrower: Your down payment and other funds needed to close.
- Funds for Borrower: Total amount you need to provide at closing.
Page 3 of the Loan Estimate
Page 3 compares the costs of your loan offer to other available options:
- Annual Percentage Rate (APR): The total cost of credit including interest, fees and other charges. Allows you to easily compare loan offers.
- Finance Charge: The dollar amount of credit cost over the loan term.
- Amount Financed: The loan amount available after paying upfront fees.
- Total Interest Percentage: How much of your payments go toward interest over the full loan term.
The bottom of page 3 shows contact information for your lender and loan officer.
Tips for Reviewing your Loan Estimate
When you receive a loan estimate from a lender, make sure to thoroughly review it. Here are some best practices:
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Compare offers side-by-side. Applying with multiple lenders makes it easy to see who provides the best terms.
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Watch out for low initial rates. Lenders may offer a super low rate that later adjusts much higher. Verify if it’s fixed or adjustable.
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Review the fine print. Make sure you understand key terms, projections and all closing cost fees.
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Ask about lender credits. See if there are any lender credits that lower your closing costs.
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Lock your rate. Your rate isn’t guaranteed until you lock it in with the lender. Rates fluctuate daily.
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Save your loan estimate. Compare it to the final closing disclosure statement before closing.
When Do You Receive the Loan Estimate?
By law, the lender must provide a loan estimate within 3 business days of receiving your mortgage application. If you don’t receive it, follow up with the lender immediately.
Once issued, the terms and costs listed on page 1 and 2 of the loan estimate are binding for 10 business days subject to a tolerance threshold. This allows you time to compare offers and lock in acceptable terms.
Can Fees Change After Receiving Loan Estimate?
Many of the fees and closing costs listed on the loan estimate are “locked” and cannot change. However, some charges are estimates and can increase.
Here are the general fee change rules:
- Origination charges cannot increase at all.
- Appraisal/credit fees cannot change unless there is a valid reason.
- Title fees cannot increase more than 10% at closing.
- Prepaids and escrows can change at any time.
If a valid change does occur, the lender must send an updated loan estimate within 3 days.
When Do You Receive the Closing Disclosure?
Around closing time, your lender will send a closing disclosure statement. This is the final disclosure showing the actual loan costs and terms you’ll be agreeing to at closing.
By law, your lender must send the closing disclosure at least 3 days before you sign the final mortgage paperwork. Compare it closely with your loan estimate to make sure there aren’t any unwanted changes.
Use Your Loan Estimate to Shop Smart
The loan estimate is an incredibly useful tool to help you shop for the best mortgage. By comparing multiple loan estimates, you can zero in on the lender offering the optimal mix of competitive rates, reasonable fees, and overall best value.
Be an informed borrower by taking the time to thoroughly understand this vital mortgage document. Decoding the various sections and fine print of a sample loan estimate will prepare you to make the right financing decision and save money.
Loan estimate vs. closing disclosure form: What’s the difference?
A closing disclosure is another key form you’ll encounter as you go through the homebuying process. It’s very similar to a loan estimate in that it breaks down the interest rate, closing costs and other terms of your loan. But a closing disclosure isn’t an estimate — it’s final. Specifically, it’s a legal document that spells out the terms of the mortgage you’re about to take out.
The closing disclosure also comes with its own three-day rule: You must receive a copy at least three business days before your closing date.
Don’t forget: When it comes to mortgage fees, your lender is obligated to keep its promises. Mortgage rates, however, can change if you don’t lock them in on the day you receive your loan estimate. Compare the terms listed in your closing disclosure to what you were quoted in your loan estimate.
What is a loan estimate?
A loan estimate explains important features of a mortgage you’ve applied for, like your interest rate and estimated closing costs. The Consumer Financial Protection Bureau (CFPB) requires all lenders to use a standardized form to present the information, making it easier for consumers to compare the details of each loan offer they’re received.
To view a sample loan estimate, keep reading. We’ll map out the anatomy of this important document and make it easy to find what you need.
How To Read A Mortgage Loan Estimate
What is a sample loan estimate?
The sample Loan Estimate shows you where you’ll find information on your own form. When you select any of the items on the Loan Estimate, the tool highlights the information on the image and also highlights the explanation. You can download the sample Loan Estimate if you’d like to print it or just get a better look.
What does a mortgage loan estimate include?
The mortgage Loan Estimate includes your estimated interest rate, monthly payment, closing costs and other details. The Loan Estimate has only been around for a few years. In the past, you may have received two documents – the good faith estimate and the truth-in-lending statement – from your lender.
How many pages does a loan estimate contain?
The loan estimate contains three pages of information about your loan. Below is a loan estimate example highlighting the 11 most important details to review. 1. “Save this loan estimate to compare to your closing disclosure.”
What are the key terms on a loan estimate?
Key terms on Loan Estimate page 1: Principal and interest — Your monthly payment to the mortgage company. Includes the amount paid toward your loan balance and interest paid to the lender Prepayment penalty — May be charged if you sell, pay off a big chunk of the loan balance, or refinance within the stated time frame.