Loan Estimate Explained: What to Check and How to Compare Two
A Loan Estimate describes a mortgage you asked for. Check that it matches what the lender told you, then put two or more side by side and compare origination charges, the costs you cannot shop for, and cash to close.
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A Loan Estimate is the form a lender gives you about a mortgage you have requested. This guide follows the Consumer Financial Protection Bureau's own explainer, which walks through a sample form item by item. It is written for someone holding a Loan Estimate for the first time who wants to know what to look at, in what order, and what to ask.
The CFPB's advice comes down to two habits. First, read the form against what you discussed with the lender, and if something looks different from what you expected, ask why. Second, request Loan Estimates from several lenders so you can compare them and choose the loan that is right for you.
Asking for more than one
The CFPB describes the Loan Estimate as telling you the details of a mortgage loan you have requested, and it encourages you to ask more than one lender for one. Its explainer does not cover delivery timing, so ask each lender when you should expect yours, and ask every lender to quote the same kind of loan so the comparison is fair.
First pass: the basics
Start with the items that are easy to check and expensive to get wrong.
- Your name and contact details. The CFPB says to ask the lender to correct any inaccurate information, and that even minor misspellings can cause big problems later.
- Loan term, purpose, product and loan type. These should match what you discussed with your lender.
- Loan amount. If you are buying, the loan amount plus your down payment should equal the sale price. If it does not, the CFPB says to ask the lender why.
Your monthly payment
The form separates the monthly payment into pieces, and the pieces are where surprises hide.
Principal is the amount you borrow. Interest is the lender's charge for lending it. Together they usually make up the main part of your monthly payment, but the CFPB notes that your total monthly payment will typically be more because of taxes and insurance.
Look at the Estimated Total Monthly Payment and ask yourself whether you are comfortable spending that much on housing each month. It includes mortgage insurance and escrow, if they apply. Then check the Estimated Taxes, Insurance & Assessments line for items that are not escrowed. Those you pay directly, often in large lump sums, so make sure you can afford them and know how often they come due.
Three loan features deserve a slow read:
- Adjustable rate. If the right-hand column says yes, the rate can change after closing. An adjustable-rate form carries extra information in the Projected Payments table on page 1 and in two more tables at the bottom of page 2.
- Prepayment penalty. The CFPB calls this feature risky: the lender can charge a fee if you pay the mortgage off early.
- Balloon payment. Also called risky by the CFPB: the final payment is a lump sum much larger than the regular ones.
If either risky feature appears and you did not expect it, ask the lender about your other options.
Closing costs, section by section
Closing costs are the upfront costs of getting the loan and transferring the property. The form sorts them so you can see who controls each one.
| Part of the form | What it is | What the CFPB suggests |
|---|---|---|
| Origination charges | Upfront fees from your lender | Compare against other lenders; the total matters, not how itemized it is |
| Services you cannot shop for | Third-party services the lender requires and chooses | Compare the overall cost with other Loan Estimates |
| Services you can shop for | Required services you may choose a provider for | Use the lender's approved list or look elsewhere, and check with the lender about anyone off the list |
| Other costs | Costs of the transfer and of owning the home | Check the insurance and property tax estimates |
Insurance and taxes are not the lender's numbers. The homeowner's insurance premium is set by the insurance company, and you choose the company, so shop around to see whether the lender's estimate fits your situation. Property taxes are set by local or state government, so the CFPB suggests asking your local tax authority or your real estate agent whether the estimate is accurate.
Two lines are choices dressed up as numbers. An amount for points means you are paying the lender up front in exchange for a lower interest rate. An amount for lender credits means the lender is giving a rebate toward closing costs, and you may be paying a higher rate in exchange. In both cases the CFPB asks whether you discussed it, and notes that a similar loan may be available without them.
Cash to close
Estimated Cash to Close is the money you must bring. The CFPB says it includes your down payment and closing costs, minus any deposit already paid to the seller, any seller credits and other adjustments. You will typically need a cashier's check or wire transfer, and the lender must document where the money came from, so ask which documents it will want. If you want to test the closing-cost arithmetic yourself, the Calcimator closing costs calculator is one place to do it.
The loan officer and the rest of the form
The CFPB suggests confirming that the loan officer listed is the one you are working with. Most loan officers are required to be licensed or registered with the Nationwide Mortgage Licensing System and Registry, and you can look one up by name or ID to see whether they are authorized in your state and whether there are disciplinary actions.
The same part of the form covers the cost of a late payment, which is worth knowing in advance, and a few terms: an appraisal is the independent valuation the lender uses, and you have a right to a copy. An assumption means a buyer might take over your loan if you sell, though most loans do not allow it. A loan servicer handles payments and questions, and may not be the lender.
How to compare two Loan Estimates
Because costs vary by lender and by loan type, the CFPB says to request Loan Estimates for the same kind of loan from different lenders. Then work through the same order each time.
- Compare the loan terms, rate type, and any prepayment penalty or balloon payment.
- Compare origination charges, using the total.
- Compare the services you cannot shop for.
- Check whether points or lender credits explain a difference in rate.
- Compare the Comparisons section: the annual percentage rate is one measure of cost, and the Total Interest Percentage shows how much interest you pay over the life of the loan.
- Compare Estimated Cash to Close and the Estimated Total Monthly Payment.
Worked example
Jordan has two Loan Estimates for the same kind of loan. Lender one shows a lower rate, but its form lists an amount on the points line. Lender two shows a slightly higher rate and an amount on the lender credits line. Jordan does not stop at the rate, and compares origination charges and the services she cannot shop for, noting that the cash to close differs mainly because of the points and the credit. Next come calls to both lenders, asking what a similar loan would look like with neither, and a request to the loan officer on each form to confirm the numbers in writing. Which offer costs less overall depends partly on how long Jordan expects to keep the loan, so that question goes to both lenders too before anything is signed.
When to ask a professional
This guide explains a government form. It is not mortgage, legal or tax advice. Ask your lender to explain any line you do not understand, and consider a housing counselor or real estate attorney if a term worries you.
Questions people ask
Is a Loan Estimate a commitment?
The CFPB describes it as the details of a loan you have requested and a tool for comparing offers. Whether and when a rate is locked varies: the CFPB says some lenders lock your rate as part of issuing the Loan Estimate, but some may not. Ask.
Do I need the same kind of loan on each form?
Yes, for a fair comparison. The CFPB says loan costs vary across lenders and across kinds of loans, so ask for the same kind from each.
What if my name is spelled wrong?
Ask the lender to correct it now. The CFPB warns that even minor misspellings can cause big problems later.
Next, read the Closing Disclosure guide, which shows what to compare when the final form arrives, and use the first-time home buyer checklist and home buying timeline checklist to keep track of the steps around it.
Sources (1)
- CFPB, Loan Estimate explainer consumerfinance.gov