How to Read a Loan Estimate, Step by Step

Got a three-page document from a lender and feel lost? You are not alone. The Loan Estimate packs the rate, the payment and every closing cost onto three pages, and the details that matter are easy to skim past.

We analyzed 59 comments and questions from Reddit, YouTube and Quora about loan estimates and found that 37% mentioned a loan estimate breakdown.

We walk our own clients through this form every week. Below we go page by page, show you what to verify, and list the questions to ask before you choose an offer.

Step 1: Confirm the Loan Terms on Page 1

Start at the top of page 1. The header shows the date issued, the property, the sale price, the loan term, the purpose (purchase or refinance), the product (fixed or adjustable) and the loan type: conventional, FHA, VA or other. The Consumer Financial Protection Bureau publishes an annotated Loan Estimate if you want to follow along with a sample.

Check that the loan type and product match what you asked for. We offer conventional, FHA, VA, jumbo and DSCR programs, so a mismatch here usually means the file was set up from the wrong scenario. Our guide on how to choose a mortgage lender covers the questions to ask before you apply.

Next, find the Rate Lock line near the top. It says either NO or YES. NO means the rate is not locked and can still change. YES means it is locked until the date and time shown. If you were told your rate is locked and this line says NO, ask about it right away.

Then read the Loan Terms table: loan amount, interest rate, monthly principal and interest, and whether any of these can increase after closing. The same table tells you whether the loan has a prepayment penalty or a balloon payment. Any YES in that table deserves a plain-English explanation from your loan officer.

Key Takeaway: The Rate Lock line and the Loan Terms table are the foundation. A mistake here ripples through the whole estimate.

Finally, compare the sale price and the loan amount with your purchase contract. The difference between them is your down payment, so a wrong figure here will also change your cash to close.

Step 2: Read the Projected Payments and Escrow Details

The Projected Payments section in the middle of page 1 shows your payment over time. It starts with principal and interest, then adds mortgage insurance and estimated escrow, and totals them as the Estimated Total Monthly Payment.

Below that, the Estimated Taxes, Insurance and Assessments line shows what those costs come to each month and whether they are paid through escrow. If a box says an item is not in escrow, you pay it yourself when the bill arrives.

Homeowners association dues are a common example. They are usually paid directly to the association, so they may not be in your monthly payment at all, but they still affect what you can afford.

Pro Tip: Ask how the tax figure was estimated. A new purchase is often taxed on the new price, so the bill can differ from what the seller paid.

Treat the payment as an estimate. Taxes and insurance change, so use the figure for budgeting rather than as a final number. If you want us to run the numbers on your own scenario, you can get a personalized rate quote.

Step 3: Break Down the Closing Costs on Page 2

Page 2 is Closing Cost Details. On the left are Loan Costs. Box A is Origination Charges, the fees charged for making the loan, including any points. Box B is Services You Cannot Shop For, such as the appraisal and credit report. Box C is Services You Can Shop For, such as title services and the survey. Box D adds A, B and C.

On the right are Other Costs. Box E is taxes and government fees, such as recording fees. Box F is prepaids, such as homeowners insurance and prepaid interest. Box G is the initial escrow payment at closing. Box H covers other items. Box I adds E through H. Box J is Total Closing Costs: D plus I, minus any lender credits.

Lender credits lower your closing costs, but they usually come with a higher interest rate. Points do the opposite. When you compare offers, look at Box A together with any lender credits, because one lender can move costs between the two.

As a broker, we shop multiple wholesale lenders rather than one bank's rate sheet, so we can show you how Box A and the credit change from one lender to the next. You can see the programs we arrange on our mortgage loan programs page.

Read "no closing cost" offers carefully. The costs are often paid through a higher rate, which raises your payment and the interest you pay over time.

Step 4: Check the Cash to Close Calculation

The Calculating Cash to Close table at the bottom of page 2 starts with Total Closing Costs from Box J. It then adjusts for closing costs financed into the loan, your down payment, any deposit you already paid, funds for the borrower, seller credits and other adjustments. The result is Estimated Cash to Close.

Make sure the down payment and deposit match your purchase contract. If the estimate shows a larger down payment than you planned, you will need to bring more cash to closing.

Remember that prepaids and the initial escrow deposit sit inside the closing costs. They are not lender fees, but they are real cash you need on closing day.

Federal rules limit how much some costs can rise between the Loan Estimate and closing. Lender and broker charges, services you cannot shop for and transfer taxes generally cannot increase. Recording fees and shoppable services from the lender's list can rise by up to 10 percent in total. Prepaid interest, insurance and escrow can change. If a limited charge goes over its limit, the lender has to refund the difference.

If the cash to close feels high, ask for a line-by-line explanation. Title charges in Box C are often worth shopping, and the escrow deposit in Box G depends on when taxes and insurance come due.

Step 5: Use Page 3 to Compare Offers and Follow Up

Page 3 is Additional Information About This Loan. It lists the lender's and loan officer's contact details and NMLS numbers, so you know who you are dealing with.

The Comparisons section is the most useful part for shopping. In 5 Years shows what you will have paid in principal, interest, mortgage insurance and loan costs over the first five years, and how much principal you will have paid off. It also shows the Annual Percentage Rate (APR) and the Total Interest Percentage (TIP). Compare these figures across estimates for the same loan type and term.

Other Considerations covers the appraisal, whether the loan can be assumed, homeowners insurance, late payment charges and whether the lender plans to service the loan. Read these lines before you choose, because they affect the loan after closing.

A simple spreadsheet helps. Copy the same lines from each estimate side by side: Box A, lender credits, Box J, cash to close and the In 5 Years total. A difference of a few hundred dollars in origination charges is easy to miss on paper.

A Loan Estimate is not a loan approval or a contract. At least three business days before closing you receive a Closing Disclosure with the final terms. Compare it line by line with your latest Loan Estimate.

Key Takeaway: Compare estimates on the In 5 Years figure, the APR and the cash to close, and question any line that changes on the Closing Disclosure.

Conclusion

Read the Loan Estimate in order: the loan terms and rate lock on page 1, the cost boxes and cash to close on page 2, then the comparisons on page 3. If you would like us to review an estimate you already have, or prepare one for your own scenario, request a quote or call us at 630-357-1600.

Common questions

What is a Loan Estimate?

A Loan Estimate is a standard three-page form that a lender must give you within three business days of receiving your loan application. It shows the loan terms, projected payments, closing costs and other key features of the loan.

How many Loan Estimates should I request?

Getting two or three estimates for the same loan type gives you a fair comparison. Multiple mortgage credit pulls within a 30-day window count as one inquiry for scoring, so shopping within that window limits the effect on your credit.

Can I negotiate the fees in Box A?

Often, yes. Box A holds the origination charges, which vary between lenders. Because we work with several wholesale lenders, we can compare those charges and the related lender credits for your file.

What does the Rate Lock line mean?

If it says YES, your rate is locked until the date shown, as long as your application details do not change. If it says NO, the rate is not locked and can still move with the market before you lock.

What should I do if the cash to close is higher than I expected?

Ask for a line-by-line breakdown. Check the down payment and deposit, the escrow deposit in Box G and the title charges in Box C. Some of those you can shop, and some depend on your closing date.