The Loan Estimate is one of the most important documents when you’re shopping for a new loan. It tells you important details about a mortgage loan you have requested, and gives you the ability to easily compare offers from different lenders. Below we explain the different parts of the Loan Estimate. The first page summarizes the terms you discussed with your lender. Beginning on the second page is the key information that will help you compare between lenders and find the right loan for you. We have highlighted those in red for you. If something looks different from what you expected, do not hesitate to ask the lender why.
For more information on Loan Estimates, you can visit the Consumer Financial Protection Bureau.
Your Loan Estimate Page 1
A. Summary of Terms
The basics of your loan. Check that your information is correct and what you discussed. Some lenders may lock your interest rate as part of issuing the Loan Estimate, but some prefer to do it later in the process.
B. Loan Terms
Monthly Principal and Interest
Principal (the amount you will borrow) and interest (the lender’s charge for lending you money) usually make up the main components of your monthly mortgage payment. Your total monthly payment will typically be more than this amount due to taxes and insurance.
A feature on some mortgages. A prepayment penalty means that the lender can charge you a fee if you pay off your mortgage early.
A feature on some mortgages. A balloon payment means that the final mortgage payment is a lump sum much larger than the regular monthly payments, often tens of thousands of dollars.
C. Projected Payments
Principal & Interest
Principal is the amount you will borrow. Interest is the lender’s charge for lending you money.
Mortgage insurance is typically required if your down payment is less than 20% of the price of the home.
Additional charges related to home ownership, such as property taxes and homeowners’ insurance, that are bundled in your monthly payment.
Estimated Total Monthly Payment
The total payment you will make each month, including mortgage insurance and escrow, if applicable.
Estimated Taxes, Insurance, & Assessments
What is included in your monthly escrow payment.
D. Costs at Closing
Estimated Closing Costs
Upfront costs you will be charged to get your loan and transfer ownership of the property. Also sometimes referred to as “settlement costs.”
Estimated Cash to Close
Total amount you will have to pay at closing, in addition to any money you have already paid.
Your Loan Estimate Page 2
E. Origination Fees
The best way to tell if you have a competitive loan offer is to compare it to Loan Estimates from other lenders. Origination charges are upfront fees charged by your lender, and are an important part of the cost of your loan. When comparing Loan Estimates, make sure to compare the origination charges.
Depending on the lender, origination charges may be more or less itemized. Common origination charges include application fees, origination fees, underwriting fees, processing fees, verification fees, and rate-lock fees. It’s the total that matters.
If there is an amount listed on this line, it means that you are paying points to the lender to reduce your interest rate. Did you discuss this choice with the lender? A similar loan may also be available without points, if you prefer.
G. Services You Cannot Shop For
The services and service providers in this section are required and chosen by the lender. Because you can’t shop separately for lower prices from other providers, compare the overall cost of the items in this section to the Loan Estimates from other lenders.
H. Services You Can Shop For
The services in this section are required by the lender, but you can save money by shopping for these services separately. Along with the Loan Estimate, the lender should provide you with a list of approved providers for each of these services. You can choose one of the providers on the list. You can also look for other providers, but check with your lender about any provider not on the list.
I. Lender Credits
If there is an amount listed on this line, it means that the lender is giving you a rebate to offset your closing costs. You may be paying a higher interest rate in exchange for this rebate. Did you discuss this choice with the lender? A similar loan may be available with a lower interest rate and without lender credits, if you prefer.
J. Estimated Cash to Close
Your Estimated Cash to Close is the estimated amount of money you will have to bring to closing. This section shows how the Estimated Cash to Close was calculated. Your Estimated Cash to Close includes your down payment and closing costs, minus any deposit you have already paid to the seller, any amount the seller has agreed to pay toward your closing costs (seller credits), and other adjustments.
Your Loan Estimate Page 3
This section offers several useful calculations to compare the cost of this loan offer with other offers from different lenders. Because loan costs vary both across lenders and across different kinds of loans, it’s important to request Loan Estimates for the same kind of loan from different lenders.
The lender uses an appraisal to decide how much your home is worth. The appraisal is conducted by an independent, professional appraiser. You have a right to receive a copy.
If your loan allows assumptions, that means that if you sell the home, the buyer may be allowed to take over your loan on the same terms, instead of having to get a new loan. If your loan does not allow assumptions, the buyer will not be allowed to take over your loan. Most loans do not allow assumptions.
Servicing refers to handling the loan on a day-to-day basis once the loan is made—for example, accepting payments and answering questions from borrowers. The lender can choose to service your loan itself, or transfer that responsibility to a different company.