How to read a mortgage Loan Estimate

We are not a mortgage lender and cannot originate a home loan — a licensed lender does all of that. What we can do, because nobody in the transaction is paid to, is help you read what you are handed.

The Loan Estimate is the document that makes comparison possible, and most buyers glance at the rate and file it.

What it is

A standardised form a lender must provide shortly after you apply. Standardised is the important word: every lender uses the same layout, so the same figure appears in the same place on every offer. That is what makes two quotes genuinely comparable.

The sections that matter

Loan terms, page one

Amount, rate, monthly principal and interest, and whether any of them can increase. Check the prepayment penalty and balloon payment lines specifically — both should be there and both should be answered.

Projected payments

The estimated total monthly payment including taxes, insurance and any mortgage insurance. This is the number that actually leaves your account, and it is frequently a lot larger than the principal and interest figure people anchor on.

Costs at closing

Estimated closing costs and estimated cash to close. The second is what you need to actually have.

Loan costs, page two

Broken into origination charges, services you cannot shop for, and services you can. That third category is worth reading properly — you are allowed to shop for some of these, and few buyers do.

Comparing two estimates

1. Confirm both are for the same loan type, term and amount. Otherwise you are comparing different products.
2. Compare cash to close, not just rate.
3. Compare total monthly payment, not just principal and interest.
4. Check whether either includes points, and how many.
5. Look at the comparisons box on page three, which shows total cost over five years and the annual percentage rate.
6. Check the lender credit line — a credit is a higher rate paying some of your costs, which is a trade rather than a gift.

What can change later

Some figures are estimates and some are subject to tolerance limits. The Closing Disclosure you receive before closing is the final version, and it is worth comparing against the Loan Estimate line by line.

Differences are not automatically wrong — some are legitimate. But unexplained increases are a reasonable thing to query, and the time to do so is before closing rather than after.

What to do with all this

Get more than one estimate. The effort of a second application is small relative to the difference between offers, and credit scoring generally treats multiple mortgage inquiries in a short window as a single event for this exact reason.

And if something on the form does not make sense, ask the lender to explain it. A lender who will not walk you through their own Loan Estimate patiently is telling you what working with them will be like.