Loan estimate

What does loan estimate mean?

The Loan Estimate is the document that lets you comparison-shop mortgages on equal footing. By law the lender must provide it within three business days of your application, in a standard format showing the interest rate, projected payment, estimated closing costs and key features. Get one from several lenders and compare them line by line — it is the single most useful tool for finding the cheapest loan.

What is on each page

• Page 1 — loan terms, the interest rate, monthly payment, whether the rate or payment can rise, any prepayment penalty or balloon, and estimated cash to close.
• Page 2 — closing costs itemized: origination charges, services you cannot shop for, services you can shop for, taxes and government fees, and prepaids.
• Page 3 — comparisons: total paid in five years, the APR, the total interest percentage, plus servicing and appraisal disclosures.

How to use it to compare lenders

Lenders must deliver the Loan Estimate within three business days of receiving your application, and the form is identical from lender to lender — so line them up side by side. Compare origination charges (section A) first; they are the lender’s own price for the loan. Then check the “In 5 years” figure and the APR on page 3.

Some fees can only change within limits at closing: the lender’s own charges generally cannot rise at all, and certain third-party fees can rise no more than 10% in total. The Closing Disclosure is where you check that those tolerances held.