Loan Estimate

What is the Loan Estimate?

For financed buyers, the Loan Estimate is a standardized, three-page form detailing your estimated loan terms and costs. It’s designed and written to be very clear so that you fully understand what the mortgage entails. Legally, the lender must give you the Loan Estimate within three business days of receiving your loan application.

Why does the Loan Estimate matter?

The Loan Estimate is important because it serves as a preview of your estimated interest rate, monthly payments, and total closing costsbefore you commit to the loan, also known as a mortgage. It also details tax and insurance fees, how your loan terms may change in the future, and any special features of the loan.

The Loan Estimate is critical later on in the closing process. You’ll want to verify that the Closing Disclosure more or less aligns with it, to ensure your lender didn’t add additional fees or change the terms you were initially promised.

How can I get a Loan Estimate and use it to get the best loan terms?

By design, the Loan Estimate was standardized so that financed buyers could compare loans between lenders in order to pick the best one available.

After submitting your loan applications you’ll receive Loan Estimates. Between them, you’ll want to compare: loan types, loan amounts, interest rates, monthly payments, monthly mortgage insurance (if any), total monthly costs (including property taxes, homeowners’ insurance, and HOA dues), upfront loan costs, lender credits, and the total amount of cash you’ll need at closing.

You’ll also want to compare the APR (Annual Percentage Rate) of each loan, which accounts for both interest and fees. The APR is important because it shows which loan is less expensive over the full term. By contrasting the terms of Loan Estimates from different lenders, you’ll be able to choose the one that fits you best.