If you’re in the process of buying a home or refinancing, you’ll soon receive a Loan Estimate from your lender. This three-page document might look intimidating at first, but it’s one of the most important tools for comparing mortgage offers and understanding exactly what you’re signing up for.
In this guide, we’ll walk you through how to read your Loan Estimate step by step — so you can make confident, informed decisions about your mortgage.
💡 What Is a Loan Estimate?
A Loan Estimate (LE) is a standardized form that your lender must provide within three business days after you apply for a mortgage. It outlines the key terms of your loan — including interest rate, monthly payment, and closing costs — in an easy-to-read format.
The purpose?
To help you compare loan offers from different lenders on an apples-to-apples basis.
📄 Page 1: Loan Summary at a Glance
The first page of your Loan Estimate gives you an overview of your loan terms and estimated monthly costs.
1. Loan Terms
Here you’ll find:
- Loan Amount – The total you’ll borrow.
- Interest Rate – The annual rate charged by your lender.
- Monthly Principal & Interest – Your base monthly payment before taxes and insurance.
- Prepayment Penalty / Balloon Payment – Whether your loan includes extra fees for paying off early or has a large lump-sum due later.
✅ Tip: Make sure the interest rate and loan amount match what you discussed with your lender.
2. Projected Payments
This section shows how your payments may change over time, especially if your loan has an adjustable rate.
It also includes:
- Estimated Taxes, Insurance & Assessments – Costs that can vary by location, like property taxes and homeowner’s insurance.
✅ Tip: If your loan includes an escrow account, your monthly payment will include these items. If not, you’ll pay them separately.
3. Costs at Closing
This is your snapshot of the total amount you’ll need to bring to closing — including your down payment and closing costs.
✅ Tip: Keep this number in mind when budgeting for your purchase. It can often be 2–5% of the loan amount.
📑 Page 2: The Cost Breakdown
This is where your Loan Estimate gets detailed. It lists all the fees and charges associated with your mortgage.
1. Loan Costs
Divided into three sections:
- A. Origination Charges – Lender fees for processing your loan (e.g., underwriting or application fees).
- B. Services You Cannot Shop For – Fees set by the lender, like appraisal or credit report fees.
- C. Services You Can Shop For – Fees for things like title insurance or pest inspection, where you can choose the provider.
✅ Tip: Compare this section across lenders — it’s where you’ll often find meaningful cost differences.
2. Other Costs
Includes:
- Taxes and Government Fees – Transfer taxes, recording fees, etc.
- Prepaids – Upfront payments for items like homeowner’s insurance or prepaid interest.
- Initial Escrow Payment – The amount needed to set up your escrow account.
✅ Tip: These costs vary by location and timing. Your lender can explain why each charge is necessary.
3. Calculating Cash to Close
This section summarizes exactly how much you’ll need at closing, factoring in your down payment, deposit, and any credits.
✅ Tip: If something looks off here, ask your lender for clarification before closing day.
📘 Page 3: The Fine Print (That Matters)
The final page contains key details about your loan’s conditions.
1. Comparisons
This section helps you see how your loan stacks up by showing:
- Total payments made in 5 years
- Total interest paid in 5 years
- Annual Percentage Rate (APR) – A true measure of the loan’s cost, including fees.
- Total Interest Percentage (TIP) – The total interest you’ll pay as a percentage of your loan amount.
✅ Tip: The lower the APR and TIP, the cheaper your loan overall.
2. Other Considerations
Here, you’ll see important disclosures about your loan, such as:
- Whether your loan can be assumed by another buyer
- Whether the lender plans to service or sell your loan
- Details about late payment penalties or refinance options
✅ Tip: Always read this section carefully — it can affect your flexibility down the road.
3. Confirm Receipt
You’ll sign here to acknowledge you received the estimate — but signing doesn’t mean you’re accepting the loan. It just means you’ve reviewed it.
🧭 How to Compare Loan Estimates from Different Lenders
When you receive multiple Loan Estimates, focus on these key numbers:
- Interest Rate
- APR (Annual Percentage Rate)
- Loan Costs (Section A)
- Cash to Close
- Monthly Payment
✅ Pro Tip: A lower interest rate doesn’t always mean a cheaper loan — always look at the APR to see the true cost after fees.
🏁 Final Thoughts
Your Loan Estimate is one of the most powerful tools you have when shopping for a mortgage. It tells you not just what you’ll pay each month, but what your loan will truly cost over time.
By understanding each section, you’ll be better prepared to compare offers, ask smarter questions, and avoid surprises at closing.
Buying a home is a big step — but with the right knowledge, you can walk into it with confidence.