How to read a mortgage Loan Estimate

If you have applied for a mortgage, you will get a form that looks dense the first time you see it. This US guide walks through what the Loan Estimate shows, how its sections are laid out and which questions to take back to the lender.

It explains the form. It does not say whether any rate or fee is good, whether to lock a rate, or which lender to use. Your Loan Estimate describes your own loan offer, and only you and the lender can confirm its details.

Key takeaways

• A Loan Estimate is not an approval or a denial. It shows the terms the lender expects to offer if you move forward.
• Lenders use the same standard form, which makes offers easier to compare.
• Check the basics first: your name, the loan amount, the loan type and term, and whether the figures match what you discussed.
• Ask the lender to explain anything that differs from what you expected.

What a Loan Estimate is

A Loan Estimate is a three-page form you receive after applying for a mortgage. It gives the estimated interest rate, monthly payment and total closing costs for the loan you requested, along with estimated taxes and insurance and how the rate and payment may change. It also flags special features such as a prepayment penalty.

The lender has not yet approved or denied the application when it sends the form. The Consumer Financial Protection Bureau (CFPB) says this is true even when the interest rate is locked. You have not committed to a lender by receiving a Loan Estimate. If you decide to move forward, the lender will ask for more financial information.

When you should receive one

The lender must give you a Loan Estimate within three business days of receiving your application. The CFPB also describes the trigger as submitting six key pieces of information, and says to allow a few extra days for delivery if the lender uses postal mail. If you have not received it in that time, the CFPB suggests calling the lender and asking why.

This does not apply to every loan. According to the CFPB you will not receive a Loan Estimate or Closing Disclosure when you are shopping for a reverse mortgage, a home equity line of credit, a manufactured housing or mobile home loan not secured by real estate, or certain subordinate loans through homebuyer assistance programs. For those loans you should receive Truth-in-Lending disclosures instead. The CFPB also notes that the process on its pages reflects mortgage regulations that apply to most mortgages.

Page 1: the loan itself

Start by confirming the basics: the spelling of your name, the loan term, purpose, product and loan type, and the loan amount. For a purchase, the CFPB says the loan amount plus your down payment should equal the sale price. If it does not, ask the lender why.

Rate lock. Check the top of page 1 to see whether your interest rate is locked and until when. The CFPB says some lenders lock the rate when they issue the Loan Estimate and some do not. If the rate is not locked, it can change at any time.

Risky features. Certain features appear under Loan Terms on page 1. They include whether the loan amount can increase after closing (negative amortization), whether the interest rate can increase, whether the monthly principal and interest payment can increase, whether there is a prepayment penalty and whether there is a balloon payment. If one is present, the CFPB suggests asking the loan officer why it is included.

Fixed or adjustable. If the right-hand column for interest rate increase says YES, the rate is adjustable and can change after closing. An adjustable-rate loan has extra information in the Projected Payments table on page 1 and in two additional tables at the bottom of page 2.

Monthly payment. Principal and interest are usually the main parts of the payment, but the total monthly payment is typically more because of taxes and insurance. Look at the Estimated Total Monthly Payment, and check whether it includes mortgage insurance and escrow. Taxes, insurance and assessments that are not escrowed are costs you pay directly, often in large lump sums. Check how often those payments come due.

Page 2: closing costs

Page 2 breaks down closing costs, which are the upfront costs of getting the loan and transferring ownership of the property.

• Origination charges are upfront fees from your lender, such as application, origination, underwriting, processing, verification and rate-lock fees. The CFPB says it is the total that matters, because lenders itemize these differently.
• Services you cannot shop for are third-party services the lender requires and chooses. You cannot shop for them separately, so the CFPB suggests comparing the overall cost of this section with other lenders' Loan Estimates.
• Services you can shop for are required by the lender, but you can choose a provider. The lender should give you a list of approved providers. You can look elsewhere, but check with the lender about any provider not on the list.
• Other costs relate to the property transfer and to owning the home. The homeowner's insurance premium is set by your insurance company, not the lender. The CFPB suggests comparison shopping to learn whether the lender's estimate is accurate for your situation. Property taxes are set by local or state government, not the lender.
• Lender credits and points. A lender credit offsets closing costs, and the CFPB says you may be paying a higher interest rate in exchange. Points are an upfront fee you pay in exchange for a lower interest rate. Both are lines where the CFPB suggests asking whether you discussed the choice with the lender, and what other options exist.
• Estimated Cash to Close is the money you need to bring to closing. It includes your down payment and closing costs, minus any deposit you have paid the seller, any seller credits and other adjustments. The lender will need to document the source of the funds. If the figure is not what you expected, ask the lender to explain.

Page 3: loan officer, comparisons and other terms

• Loan officer. Check that the loan officer listed is the one you are working with. The CFPB says most loan officers must be licensed or registered with the Nationwide Mortgage Licensing System and Registry (NMLS), and you can look one up by name or NMLS ID.
• Comparisons. This section offers calculations for comparing this loan offer with others, including the Annual Percentage Rate (APR), which the CFPB calls one measure of a loan's cost, and the Total Interest Percentage (TIP), which it says shows how much interest you will pay over the life of the loan. The CFPB says to request Loan Estimates for the same kind of loan from different lenders.
• Late payment. The form states what a late payment would cost.
• Appraisal, assumption and servicer. The appraisal is done by an independent appraiser, and the CFPB says you have a right to receive a copy. Assumption means whether a buyer could take over your loan if you sell, and the CFPB says most loans do not allow it. The servicer handles the loan day to day, and it may or may not be the lender.

Questions to ask the lender

Each question below is based on a prompt in the CFPB pages listed at the end of this guide.

• Is my rate locked? If not, when in the process do you typically lock, and what do I need to do?
• Are there fees to lock the rate? How many days would I have to close before the lock expires?
• What happens if I cannot close in that time? Would there be a fee to extend, and how much?
• Why does anything on this form differ from what we discussed?
• Does this loan include any of the risky features on page 1, and why?
• Do I have lender credits or points, and what other options would change my interest rate and total cost?
• What documents will you need to confirm the source of my cash to close?

Comparing offers

The CFPB says the best way to tell whether you have a competitive loan offer is to compare Loan Estimates from other lenders, and to compare origination charges, services you cannot shop for and the overall costs. It also says to take your time. The time you spend reviewing and comparing before agreeing to proceed can help prevent surprises later.

What a calculator cannot tell you

Online calculators are useful for exploring payments. They do not replace the Loan Estimate or any other lender document. Valora's mortgage calculator page says its formula covers principal and interest only, and does not include property tax, homeowners insurance, PMI or HOA dues. A lender's Loan Estimate shows the estimated total monthly payment for the specific loan offered. Valora's home affordability calculator estimates a price from a debt-to-income guideline, and its page says actual lending limits depend on your credit, the lender and the loan program. Neither tool produces a loan offer.

Where to get help

If you need help reviewing a Loan Estimate, the CFPB suggests contacting a HUD-certified housing counselor, who can be found online or at 1-800-569-4287. If your Loan Estimate has errors, the CFPB says to get them fixed now, since even a small error such as a wrong property address can affect your rate and costs.

The bottom line

A Loan Estimate is a standard form that shows the terms a lender expects to offer, and it is not an approval. Read it page by page: confirm the basics, check whether the rate is locked, look at the loan features on page 1, then the closing costs, cash to close and loan officer details. If anything differs from what you discussed, ask the lender to explain it. To compare lenders, use Loan Estimates for the same kind of loan and look at the totals. This guide does not say whether your offer is good. The form, the lender and a HUD-certified housing counselor can help you answer that for your own loan.

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Talk it through

Common questions

1. Is a Loan Estimate the same as a loan approval? No. When you receive one, the lender has not yet approved or denied your application. It shows the terms the lender expects to offer if you move forward.
2. How soon should I get a Loan Estimate? The CFPB says the lender must provide one within three business days of receiving your application, and to allow extra days for postal mail. Some loan types, such as reverse mortgages and home equity lines of credit, use different disclosures instead.
3. Does receiving a Loan Estimate commit me to a lender? No. The CFPB says you are not committed to any lender before you have signed final closing documents, even if your rate is locked.
4. Why do some fees differ between lenders? The CFPB says lenders itemize origination charges differently, so it recommends comparing the total.
5. Can I choose my own homeowner's insurance? The CFPB says the premium is set by your homeowner's insurance company, and that you get to choose the company. It suggests comparison shopping to learn whether the lender's estimate is accurate for your situation.
6. Where can I get help understanding the form? The CFPB offers an interactive Loan Estimate explainer, and suggests a HUD-certified housing counselor at 1-800-569-4287.

Sources

Consumer Financial Protection Bureau: What is a Loan Estimate?, Loan Estimate Explainer, Review your Loan Estimates and Choosing a loan offer.