How to Read a Loan Estimate

The Loan Estimate (LE) is a standardized three-page form required by federal law for all mortgage applications. Every lender uses the exact same format, which makes comparing multiple offers straightforward once you know what to look for.

Page 1 Loan Terms and Projected Payments

The top of page 1 identifies the property, loan purpose, loan product, and rate lock status. Below that is the Loan Terms table -- the most important section on the page:

Loan Amount

The total amount you are borrowing -- home price minus down payment.

Interest Rate

The base rate charged on the loan. Compare this alongside APR, not instead of it.

Monthly Principal & Interest

Your core payment -- does not include taxes or insurance.

Prepayment Penalty

Look for "YES" here -- it means you may be charged for paying off early. Most modern loans say NO.

Balloon Payment

A large lump sum due at loan end. Should almost always say NO for residential mortgages.

The Projected Payments table below shows your estimated monthly payment broken down into principal and interest, mortgage insurance (PMI), and estimated escrow (taxes and insurance). This is your real all-in monthly cost.

Page 2 Closing Cost Details

Page 2 is where fees hide. It is divided into sections A through H:

Section A Origination Charges

Lender fees: origination fee, points, underwriting fee. These are negotiable and cannot increase from estimate to closing. Compare this section across lenders first.

Section B Services You Cannot Shop For

Appraisal, credit report, flood determination. These are fixed by the lender but cannot increase more than allowed tolerances.

Section C Services You Can Shop For

Title search, title insurance, settlement agent. You can choose your own providers here -- shopping around can save $500-$1,500.

Section E Taxes and Other Government Fees

Transfer taxes and recording fees. Generally fixed by your state and locality.

Section F Prepaids

Prepaid interest (from closing to first payment), homeowners insurance premium, property taxes. These vary based on your closing date.

Section G Initial Escrow Payment

The upfront escrow cushion your lender collects at closing -- typically 2-3 months of taxes and insurance.

Section H Other

HOA dues, home warranty, real estate commissions if applicable.

Page 3 Comparisons and Contact Information

Page 3 is the most useful for comparing lenders. The Comparisons table shows:

APR the true all-in annual cost including rate and fees. Use this for apples-to-apples comparison across lenders. See What Is APR?
Total Interest Percentage (TIP) the total interest you will pay over the full loan term as a percentage of the loan amount. A 30-year mortgage at 7% has a TIP around 140% meaning you pay $1.40 in interest for every $1 borrowed.
In 5 Years total payments and principal paid in the first five years, useful for short holding period analysis.

Red Flags to Watch For

Prepayment penalty: YES limits your ability to refinance or pay off early without a fee
Balloon payment: YES a large lump sum will be due; ensure you understand when and how much
Large origination fees compare Section A across lenders; fees vary widely and are fully negotiable
Rate not locked if the rate is floating, it can change before closing
APR significantly higher than rate signals high lender fees buried in the loan

How to Compare Multiple Loan Estimates

Get all estimates on the same day -- rates change daily
Compare APR first (Page 3) for the true cost ranking
Compare Section A (Page 2) origination charges line by line
Check the rate lock status and expiration on each
Verify prepayment penalty and balloon payment fields
Use our loan comparison calculator to model total interest differences

Frequently Asked Questions

When do I receive a Loan Estimate?

Lenders are required by federal law to provide a Loan Estimate within three business days of receiving your mortgage application. You receive one from every lender you apply with, making side-by-side comparison straightforward.

Is a Loan Estimate a commitment from the lender?

No. A Loan Estimate is not a loan approval or commitment to lend. It is a good-faith estimate of terms. The final terms appear on your Closing Disclosure, which must be provided at least three business days before closing.

What is the difference between a Loan Estimate and a Closing Disclosure?

The Loan Estimate is provided early in the process as an estimate. The Closing Disclosure is the final document provided before closing with the actual numbers. Compare them carefully -- certain fees cannot change, and others can only increase by a limited amount.

Which fees on the Loan Estimate can change?

Zero tolerance fees (cannot increase): origination charges, transfer taxes, fees for required services if you used the lender list. 10% tolerance fees (can increase up to 10%): title services, recording fees. Unlimited tolerance fees (can change): prepaid interest, homeowners insurance, initial escrow payments.

How do I compare Loan Estimates from different lenders?

Focus on Page 3 the Comparisons section. It shows APR and Total Interest Percentage (TIP) for each loan, making true cost comparison straightforward. Also compare Section A (origination charges) on Page 2 line by line.