What Is a Loan Estimate?
In plain English
A Loan Estimate is a federally required three-page document that provides a detailed breakdown of the key terms, projected payments, and estimated closing costs of a mortgage loan. Lenders must provide it within three business days of receiving your application, giving you a standardized way to compare offers from different lenders.
What Information Does a Loan Estimate Include?
Page one shows the loan amount, interest rate, monthly payment, and estimated closing costs. Page two breaks down closing costs into categories: loan origination fees, services you can and cannot shop for, taxes, and prepaid items like escrow deposits. Page three shows total cash needed to close, a summary of the loan over its first five years, and comparison metrics like the APR and total interest percentage.
How Do You Use a Loan Estimate to Compare Lenders?
The standardized format makes comparison straightforward. Focus on the interest rate, APR (which includes fees), total estimated closing costs, and cash to close. A lower rate with higher fees may cost more than a slightly higher rate with lower fees, depending on how long you keep the loan. Request Loan Estimates from at least three lenders to find the best deal.
Can the Final Costs Differ from the Loan Estimate?
Yes, but federal rules limit how much costs can change. Certain fees (like the origination charge) cannot increase at all. Others (like title and recording fees) can increase by up to 10% collectively. A few costs (like prepaid interest and escrow) can change without limit. You will receive a Closing Disclosure at least three days before closing that shows final numbers for comparison.
Frequently asked questions
Does receiving a Loan Estimate commit me to a lender?
No. A Loan Estimate is not a loan commitment or approval. You can receive Loan Estimates from multiple lenders without obligation. Shopping around within a 14-day window counts as a single credit inquiry for scoring purposes.
What should I do if my Loan Estimate looks wrong?
Contact your lender immediately to clarify any discrepancies. Common errors include incorrect property taxes, wrong loan type, or missing fees. Getting corrections early prevents surprises at the closing table.
Keep exploring
Related terms
Closing Costs
Closing costs are the fees and expenses paid at the end of a real estate transaction, on top of the down payment. They typically range from 2% to 5% of the loan amount.
Mortgage
A mortgage is a loan used to purchase real estate, where the property itself serves as collateral. It's typically repaid over 15 or 30 years through monthly payments of principal and interest.
Escrow
Escrow is a neutral holding arrangement where funds or documents are held by a third party until transaction conditions are met. In real estate, it applies both to the closing process and to ongoing tax and insurance payments.
Mortgage Points
Mortgage points are upfront fees paid to the lender at closing to reduce your interest rate. Each point typically costs 1% of the loan amount.