A Loan Estimate is a standardized document that provides important details about a mortgage offer. It can help borrowers compare loan terms, estimated payments, closing costs, and other key information.
When borrowers receive a Loan Estimate
After applying for a mortgage and providing required information, borrowers may receive a Loan Estimate from a lender. It is intended to help borrowers understand the proposed loan before moving forward.
What a Loan Estimate may show
- Loan amount
- Interest rate
- Monthly principal and interest
- Estimated taxes and insurance
- Closing costs
- Cash needed to close
- Rate lock information
- Loan type
- Whether the payment can change
- Whether there is a prepayment penalty or balloon payment
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Why it is useful
A Loan Estimate makes it easier to compare offers from different lenders because the format is standardized. Borrowers can review interest rates, APR, fees, closing costs, and monthly payment estimates side by side.
What to review carefully
- Interest rate
- APR
- Estimated monthly payment
- Estimated cash to close
- Origination charges
- Discount points
- Escrow items
- Whether the rate is locked
- Whether the loan has adjustable terms
Loan Estimate vs. Closing Disclosure
A Loan Estimate is provided earlier in the process. A Closing Disclosure is provided closer to closing and shows final loan terms and costs. Borrowers should review both documents carefully.