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What a Loan Estimate is—and is not

A Loan Estimate is a standardized disclosure used for most standard closed-end mortgage transactions secured by real property. It is generally used for home-purchase and refinance loans. Different disclosure rules may apply to products such as Home Equity Lines of Credit, reverse mortgages, and some loans secured by mobile homes.

When a creditor receives the six pieces of information that generally make up a mortgage application—your name, income, Social Security number for obtaining a credit report, property address, estimated property value, and requested loan amount—the creditor generally must deliver or place the Loan Estimate in the mail within three business days.

It is an estimate and not a final loan approval or guarantee that the loan will close. However, certain fees are subject to federal tolerance rules, so a lender cannot freely change every charge without a permitted reason.

First, compare the same loan

Before comparing lenders, confirm that the offers use the same purchase price, loan amount, loan type, term, down payment, rate-lock status, points, credits, and escrow assumptions. A lower rate may require more cash up front.

Read the main sections of the form

Loan Terms

Check the loan amount, interest rate, monthly principal and interest, fixed or adjustable features, prepayment penalty, and balloon-payment disclosures.

Projected Payments

This section may include principal, interest, mortgage insurance, estimated taxes, homeowners insurance, and escrow. Principal and interest are not necessarily the complete monthly housing cost.

Costs at Closing

Closing costs are upfront costs connected with obtaining the loan and transferring ownership. Cash to close is the estimated amount you must bring after deposits, credits, down payment, and other adjustments.

Loan Costs and Other Costs

Review origination charges, services you cannot shop for, services you can shop for, taxes, government fees, prepaid interest, insurance, and initial escrow deposits. Ask for the lender’s written list of providers for services you can shop for.

Rate, APR, points, credits, and rate locks

The interest rate helps determine the principal-and-interest payment. APR is a broader cost measure that includes the rate and certain finance charges. A discount point is generally an upfront charge equal to 1% of the loan amount in exchange for a lower rate. Lender credits reduce some closing costs but may come with a higher rate. A rate lock holds a quoted rate for a specified period.

This example suggests a break-even period of about four and a half years. It does not account for taxes, refinancing, selling, investment returns, or the time value of money.

Fee-tolerance protections

A Loan Estimate is not a loan commitment, but federal rules limit how certain estimated charges may change.

These are simplified consumer explanations, not a fee-by-fee legal determination. If a charge changes, ask the lender which category applies and why.

The intent-to-proceed rule

For a covered mortgage transaction, a creditor generally may not impose most fees before you receive the Loan Estimate and indicate that you intend to proceed. A bona fide and reasonable credit-report fee is an important exception. Keep a written record of what you communicated and when.

Compare the Loan Estimate with the Closing Disclosure

Not every change restarts the waiting period. A new three-business-day waiting period is generally required when the APR becomes inaccurate beyond the applicable tolerance, a prepayment penalty is added, or the loan product changes.

Questions to ask your lender

• Is the rate locked, and until what date?
• What would the rate be without points?
• What do lender credits cost through the interest rate?
• Which services can I shop for?
• Where is the written provider list?
• Which costs are included in escrow?
• Which costs must I pay separately?
• What caused any revised figure to change?
• What is my estimated cash to close?
• Are there prepayment or adjustable-rate features?

How TrueCostHousing can help

The Loan Estimate shows the lender’s proposed payment and transaction costs. It may not show the full cost of living in the home. Use the True Monthly Home Cost calculator to consider additional recurring expenses, and the Cash to Close calculator to organize the money required at closing.

Final takeaway

Do not choose a mortgage by looking at the interest rate alone. Compare the same loan structure, examine points and credits, understand the total monthly payment, review closing costs, and ask why any important figure changes.