How to Read a Mortgage Loan Estimate

A Loan Estimate is a standardized three-page document showing a proposed mortgage’s terms, projected payments, closing costs, and estimated cash to close. Read it page by page, confirm whether the interest rate is locked, and compare the same type of loan across lenders before making a decision.

The Loan Estimate, sometimes called an LE, is essentially your mortgage cost worksheet. Because mortgage companies, banks, and brokers use the same standardized form, it gives you a consistent way to compare loan options—even when each company presents its initial scenarios differently.

The current form took effect on October 3, 2015, combining information previously found in the Good Faith Estimate and initial Truth-in-Lending disclosure. The Consumer Financial Protection Bureau provides an official interactive Loan Estimate explainer and sample forms. (consumerfinance.gov)

Here is how to review the document step by step, following the sample discussed in the video above.

Page 1: Confirm the basic loan information

The top of page 1 identifies the borrower, property, sale price and date the Loan Estimate was issued. It also shows the basic structure of the proposed financing, including:

• Loan term
• Purpose, such as a purchase or refinance
• Loan product
• Loan type, such as conventional, FHA or VA
• Loan amount
• Interest rate
• Monthly principal and interest

Make sure these details match what you discussed. A comparison will not be useful if one lender is showing a different loan term, down payment or product than another.

Check the rate-lock section carefully

Near the top of page 1, the Loan Estimate states whether the interest rate is locked and, if so, when the lock expires. If the rate is not locked, it can change before closing.

A rate lock generally protects the disclosed rate during the stated period as long as the transaction closes on time and there are no qualifying changes to the application. Even after locking, certain changes—such as switching loan programs, changing the down payment or receiving a different appraisal result—may lead to a revised Loan Estimate. The Closing Disclosure, not the Loan Estimate, ultimately shows the finalized transaction details before closing. The CFPB explains rate locks and revised estimates here. (consumerfinance.gov)

Best tip: Do not compare a locked Loan Estimate with an unlocked quote as though they provide the same level of certainty. Confirm the lock status, expiration date, loan type and discount points first.

Review prepayment penalties and balloon payments

Page 1 tells you whether the proposed loan contains a prepayment penalty or balloon payment.

A prepayment penalty is a charge that may apply if the mortgage is paid off early under the conditions stated in the loan documents. A balloon payment is a final payment substantially larger than the regular periodic payments. If either box says “Yes,” ask for a complete explanation before proceeding and discuss whether other options are available. The CFPB identifies both features as important risks to review. (consumerfinance.gov)

These features are not typical of many standard residential mortgages, but they may appear in certain specialized or non-qualified mortgage programs. Always review the actual terms rather than assuming the answer will be “No.”

Understand projected payments

The Projected Payments table breaks down how the estimated monthly payment may change over time. Depending on the loan, it can include:

• Principal and interest
• Mortgage insurance
• Estimated escrow
• Property taxes
• Homeowners insurance
• Other property-related assessments

Remember that principal and interest are not necessarily the entire housing payment. Taxes, insurance, mortgage insurance and association charges can add to the amount you must budget, and some of those expenses may change over time.

For conventional loans with private mortgage insurance, the projection is generally based on the scheduled amortization of the original loan. Under federal rules for many eligible mortgages, borrowers may request PMI cancellation when the balance is scheduled to reach 80% of the home’s original value, subject to requirements, while automatic termination generally occurs at 78% if the loan is current. Investor and servicer guidelines may provide other cancellation paths, including rules involving current value, but appreciation alone does not automatically remove PMI. Review the CFPB’s PMI cancellation guidance. (consumerfinance.gov)

At the bottom of page 1, focus on two figures:

• Estimated Closing Costs: The estimated charges associated with obtaining the mortgage and completing the transaction.
• Estimated Cash to Close: The estimated amount the borrower must bring to closing after accounting for the down payment, closing costs, deposits, credits and adjustments.

Page 2: Review the loan costs

Page 2 divides expenses into labeled sections.

Section A: Origination Charges

Section A contains charges imposed by the lender or broker for making the loan. Depending on the transaction, these may include origination, application, underwriting, processing, verification or rate-lock charges.

Discount points also appear here. Points are an upfront charge paid in exchange for a lower interest rate than the borrower would otherwise receive. When comparing Loan Estimates, look at the entire Section A total—not only one individual fee.

Section B: Services You Cannot Shop For

These are required third-party services for which the provider is selected by the lender. Examples can include:

• Appraisal
• Credit report
• Flood determination
• Tax monitoring
• Certain mortgage insurance or program charges

An appraisal fee may be paid before closing, but it can still appear on the Loan Estimate so the document reflects the total expected cost of the transaction. Confirm whether a listed charge will be collected in advance or at closing.

Section C: Services You Can Shop For

This section covers required services for which the borrower may be permitted to select the provider. Title-related services and surveys may appear here.

In a Florida purchase transaction, the contract and local practices can affect who selects the title company and who pays specific title charges. If the seller is paying certain title expenses, the agreement may also identify the provider. Review the purchase contract rather than assuming every transaction works the same way.

Section D: Total Loan Costs

Section D is simply the total of Sections A, B and C. This gives you one combined figure for the origination charges and required services connected to the loan.

Review taxes, prepaids and escrow funding

The next part of page 2 covers other costs.

Section E: Taxes and Other Government Fees

This section may include recording charges and transfer-related taxes. Recording fees cover the cost of placing documents such as the mortgage into public records.

Florida mortgage transactions may involve a documentary stamp tax on the mortgage of $0.35 per $100, or portion thereof, of secured indebtedness, along with a nonrecurring intangible tax calculated at 0.002 of the applicable secured obligation. Florida deeds generally carry documentary stamp tax of $0.70 per $100 of consideration outside Miami-Dade County, although the applicable charges and responsible party depend on the property, documents and transaction. See the Florida Department of Revenue pages for documentary stamp tax and nonrecurring intangible tax. (floridarevenue.com)

Section F: Prepaids

Prepaids are costs collected at closing for expenses covering periods before the first regular mortgage payment or future bill. They may include:

• Homeowners insurance premium
• Prepaid interest
• Mortgage insurance premium
• Property taxes

The prepaid-interest amount depends partly on the closing date because it covers interest from closing through the end of that month.

Section G: Initial Escrow Payment at Closing

If the loan includes an escrow account, this section shows the initial amount collected to begin funding future property tax, homeowners insurance and mortgage insurance bills.

Paying an insurance premium at closing and funding an insurance escrow are not duplicate charges for the same period. The prepaid premium generally establishes current coverage, while the escrow account accumulates funds toward the next bill.

Section H: Other

Section H can include items such as an owner’s title insurance policy. Owner’s title insurance is generally shown as optional on the Loan Estimate because it is separate from the lender’s title coverage. Ask the title professional or closing attorney what the policy covers, what it costs and how it applies to the property.

Section I totals Sections E through H. Section J then combines the total loan costs from Section D with the other costs from Section I and accounts for any lender credits.

Understand lender credits

A lender credit reduces the amount charged at closing in exchange for accepting different loan pricing, which commonly means a higher interest rate than an option without the credit. The reverse can also occur: a borrower may pay discount points upfront to obtain a lower rate.

Neither structure is automatically right or wrong. The useful comparison is how the rate, APR, points, credits, cash to close and expected time in the home work together.

Check the Calculating Cash to Close table

The Cash to Close table starts with total closing costs and then accounts for items such as:

• Closing costs financed into the loan, when applicable
• Down payment
• Deposit already paid
• Seller credits
• Other credits
• Tax or assessment prorations
• Additional transaction adjustments

Early Loan Estimates may not include every final credit or proration because the lender may still be waiting for information from the title company, insurance provider or other parties. Those figures should become more precise as the loan file moves toward the Closing Disclosure.

Page 3: Use the comparison tools

Page 3 provides additional ways to evaluate the proposed loan.

The “In 5 Years” section shows the total amount paid in principal, interest, mortgage insurance and loan costs during the first five years, along with how much principal would be paid down. The CFPB recommends using these figures to compare the five-year cost of borrowing for similar loan offers. See its Loan Estimate comparison guide. (consumerfinance.gov)

You will also see:

• APR: A broader measure of borrowing cost that incorporates the interest rate and certain finance charges.
• Total Interest Percentage: The total interest scheduled over the loan term as a percentage of the loan amount.
• Appraisal information: Including your right to receive a copy.
• Assumption terms: Whether a future buyer may be allowed to take over the mortgage under stated conditions.
• Late-payment terms: When a late charge may apply and how it is calculated.
• Servicing information: Whether the lender expects to service the loan or transfer servicing.

Do not assume FHA or VA loans are never assumable. FHA-insured and VA-backed mortgages may permit assumptions subject to program rules, credit review and required approval. The Loan Estimate’s assumption section tells you how the proposed loan addresses that possibility. (consumerfinance.gov)

Put the entire Loan Estimate into context

No single number tells the complete story. A lower interest rate may involve more discount points, while a lender credit may reduce upfront cash but affect long-term borrowing costs.

Your next step is to place comparable Loan Estimates side by side and review the rate-lock status, Section A charges, lender credits, APR, five-year cost and estimated cash to close. If two figures differ and you do not understand why, ask for a line-by-line explanation before selecting the loan option that fits your plans.