What a Loan Estimate Is
Within three business days of applying for a mortgage, lenders in the US are required to provide a standardized "Loan Estimate" document. Its standardized format exists specifically so borrowers can directly compare offers from different lenders side by side.
Page 1: Loan Terms
- Loan amount, interest rate, and monthly principal & interest — the headline numbers.
- "Can this amount increase after closing?" — check this for the loan amount, rate, and monthly payment; answers here reveal whether you have a fixed or adjustable structure and any prepayment penalty.
- Estimated total monthly payment — includes principal, interest, taxes, insurance, and mortgage insurance if applicable.
Page 2: Closing Cost Details
- Loan costs — origination fees, appraisal, credit report, and other lender-related charges.
- Other costs — taxes, government fees, prepaid items (like the first year of homeowners insurance), and initial escrow deposits.
- Cash to close — the total amount you'll need to bring to closing, combining your down payment and closing costs minus any credits.
Page 3: Comparisons and Additional Information
- In 5 Years — shows total principal paid and total interest paid over the first 5 years, useful for comparing the true cost of different loan offers beyond just the rate.
- Annual Percentage Rate (APR) — a more complete cost figure than the interest rate alone, since it factors in certain fees; useful for comparing loans with different fee structures.
- Total Interest Percentage (TIP) — total interest you'll pay over the loan's life as a percentage of the loan amount.
Comparing Multiple Loan Estimates
Since the format is standardized across lenders, you can compare interest rate, closing costs, and cash-to-close figures directly, line by line, between two or more Loan Estimates received around the same time (rates and estimates can shift day to day, so compare estimates from a similar window).
Red Flags to Watch For
- A prepayment penalty — increasingly uncommon, but worth confirming is absent, especially if you might refinance or sell within a few years.
- A significant jump between the Loan Estimate and the final Closing Disclosure — certain fees have strict limits on how much they can change; a large unexplained jump is worth questioning directly with your lender.
- An adjustable rate you didn't expect — always confirm whether your rate is fixed or adjustable, and if adjustable, understand the adjustment terms.