What Is a Loan Estimate (LE) in a Mortgage?

A Loan Estimate (LE) is a standardized document provided by mortgage lenders to consumers applying for a home loan. It offers clear, comparable information about the estimated costs and terms of a mortgage, making the financial aspects transparent for borrowers.

Defining the Loan Estimate

The Loan Estimate is a three-page form required by the TILA-RESPA Integrated Disclosure (TRID) Rule, implemented by the Consumer Financial Protection Bureau (CFPB) in 2015. This rule streamlined previous disclosures into a single format. Lenders must provide a Loan Estimate within three business days of receiving a loan application. An application is complete once the lender has six pieces of information: the consumer’s name, income, Social Security number, the property address, the estimated property value, and the requested loan amount.

The Loan Estimate functions as an initial, good-faith estimate of loan terms and costs, enabling consumers to easily compare offers from different lenders. It is not a loan commitment, meaning receiving it does not guarantee loan approval.

Key Components of the Loan Estimate

The Loan Estimate is structured across three pages, each detailing different aspects of the mortgage loan.

Page 1: Loan Summary

Page 1 provides a high-level summary of the loan. It includes the “Loan Terms” section, outlining the loan amount, interest rate, estimated monthly payment, and whether the interest rate can change or if there are features like prepayment penalties. The “Projected Payments” table details the estimated total monthly payment, including principal, interest, mortgage insurance, and estimated escrow amounts for property taxes and homeowner’s insurance. The “Costs at Closing” section presents the estimated total closing costs and the estimated cash to close.

Page 2: Detailed Costs

Page 2 breaks down the costs into “Loan Costs” and “Other Costs.”
Loan Costs:
Origination Charges (Section A): Fees charged by the lender for processing the loan, such as application, underwriting, and processing fees.
Services You Cannot Shop For (Section B): Costs for services where the lender selects the provider, like appraisal or credit report fees.
Services You Can Shop For (Section C): Costs for services like title insurance or pest inspection, where the borrower can choose their own provider.
Other Costs:

• Taxes and Other Government Fees (Section E): Recording fees and transfer taxes.
• Prepaids (Section F): Items like homeowner’s insurance premiums and property taxes paid in advance at closing.
• Initial Escrow Payment at Closing (Section G): Amount collected to establish the escrow account for future property tax and insurance payments.
• Other (Section H): Any additional charges not listed elsewhere.

Certain fees, particularly origination charges and fees for services you cannot shop for, have specific tolerance limits, meaning they cannot increase significantly from the Loan Estimate to the final Closing Disclosure.

Page 3: Comparisons and Other Considerations

Page 3 offers additional information. The “Comparisons” section presents metrics such as the Annual Percentage Rate (APR), which reflects the total cost of the loan including interest and certain fees, and the Total Interest Percentage (TIP), which shows the total interest paid over the loan term as a percentage of the loan amount. This section also indicates how much principal will be paid off and the total amount paid in five years. The “Other Considerations” section details aspects like whether the loan is assumable, homeowner’s insurance requirements, and late payment policies. It also reminds borrowers to save the Loan Estimate to compare with the Closing Disclosure later.

Navigating the Mortgage Process with the Loan Estimate

Borrowers should obtain Loan Estimates from multiple lenders to compare offers. When comparing, focus on the overall loan terms, interest rate, origination charges (Section A on Page 2), and the estimated cash to close. While some costs like taxes and certain third-party fees are consistent across lenders, origination charges and the interest rate can vary significantly, making comparison shopping beneficial.

The terms outlined in the Loan Estimate are valid for 10 business days, allowing consumers time to review and decide whether to proceed. A lender cannot charge any fees beyond a credit report fee until the consumer indicates an intent to proceed after receiving the Loan Estimate.

A revised Loan Estimate may be issued for significant changes to the loan application or terms. Common reasons include a change in the loan amount, a lower property appraisal, a change in the loan product, or when the interest rate is locked. If a revised Loan Estimate is issued due to a “changed circumstance,” the lender must provide it within three business days of receiving the information that necessitated the change. Certain changes, such as an increase in the Annual Percentage Rate (APR) beyond a specific threshold or a change in the loan product, may trigger a new three-business-day waiting period before the loan can close.

The Loan Estimate serves as a precursor to the Closing Disclosure (CD), a five-page form providing the final terms and costs of the mortgage loan. Consumers typically receive the Closing Disclosure at least three business days before the scheduled loan closing. It is important to compare the final Closing Disclosure with the last Loan Estimate to ensure consistency and identify any discrepancies before finalizing the mortgage.