What Information Appears on a Loan Estimate?

The Loan Estimate (LE) is a standardized, three-page document provided to prospective borrowers after applying for a mortgage. Its purpose is to clearly outline the estimated terms, costs, and risks of a mortgage loan, allowing consumers to understand and compare options. It ensures transparency, enabling informed financial decisions. Lenders are required to issue the Loan Estimate within three business days of receiving a mortgage application.

Understanding Key Loan Terms and Costs

The first page of the Loan Estimate prominently summarizes the core financial details of the mortgage offer. It begins with the “Loan Terms” section, which specifies the Loan Amount, the Interest Rate, and the estimated Monthly Principal & Interest (P&I) payment. This section also indicates whether the loan has features like a prepayment penalty or a balloon payment. Understanding these fundamental terms is essential as they directly impact the borrower’s monthly financial commitment.

Following the loan terms, the “Projected Payments” table provides an overview of the estimated total monthly payment over time. This includes the principal and interest, any required mortgage insurance premiums, and estimated escrow amounts for property taxes and homeowner’s insurance. This projection offers a more realistic view of the total monthly housing expense, as it incorporates costs beyond just the loan repayment.

The first page also includes a “Costs at Closing” summary, presenting an estimated total of closing costs and the estimated Cash to Close. Estimated closing costs represent the fees associated with finalizing the loan, while the estimated cash to close is the total amount of money a borrower will need to bring to the closing table. This summary offers an initial snapshot of the upfront funds required.

Detailed Breakdown of Loan and Other Costs

The second page of the Loan Estimate provides a detailed itemization of all estimated costs. This section is divided into “Loan Costs” and “Other Costs.” “Loan Costs” are further categorized into three sections: Origination Charges, Services You Cannot Shop For, and Services You Can Shop For.

Section A, “Origination Charges,” lists fees charged by the lender for processing the loan. These can include application fees, underwriting fees, and any discount points paid to lower the interest rate.

Section B, “Services You Cannot Shop For,” includes fees for services required by the lender where the borrower cannot choose the provider. Common examples are appraisal fees, credit report fees, and flood determination fees.

Section C, “Services You Can Shop For,” lists fees for services where the borrower has the option to choose their own provider. This category includes pest inspection fees, survey fees, and various title-related services like title insurance and settlement agent fees. Borrowers are often encouraged to compare prices for these services.

The “Other Costs” section details additional expenses beyond the direct loan costs. Section E covers “Taxes and Other Government Fees,” such as recording fees and transfer taxes. Section F, “Prepaids,” includes payments made at closing for expenses that will accrue after closing, such as homeowner’s insurance premiums, prepaid interest, and property taxes. Section G, “Initial Escrow Payment at Closing,” outlines the initial deposit into an escrow account for future property taxes and homeowner’s insurance payments. Section H, “Other,” may include optional costs like an owner’s title policy.

Important Comparisons and Disclosures

The third page of the Loan Estimate offers tools for comparing loan offers and important disclosures. The “Comparisons” table provides three key metrics to help borrowers evaluate different loan options. The “In 5 Years” figure shows the total estimated amount of principal, interest, mortgage insurance, and loan costs a borrower will have paid after five years.

The Annual Percentage Rate (APR) represents the total cost of the loan over its term, expressed as a yearly rate, including certain fees. The APR is generally higher than the interest rate because it incorporates additional loan costs. The Total Interest Percentage (TIP) indicates the total amount of interest a borrower will pay over the life of the loan as a percentage of the initial loan amount, providing a long-term perspective on the cost of borrowing.

The “Other Considerations” section contains various disclosures. It specifies the lender’s policy regarding appraisal reports, including that a copy will be provided to the borrower. Information on whether the loan is assumable, meaning another person could take over the original loan terms, is also included. Requirements for homeowner’s insurance are detailed, as it is often a condition of the loan. The late payment policy outlines any fees that may be charged if a payment is not made on time. The loan acceptance deadline specifies how long the offer terms are valid. Servicing information indicates whether the lender intends to service the loan or transfer servicing to another company. A “Confirm Receipt” section allows borrowers to acknowledge receiving the Loan Estimate.