How to Understand Home Loan Estimates

Three days after you apply for a mortgage you will receive a 3-page document called the Mortgage Loan Estimate. 

The law requires residential lenders to provide you with this standardized document so you can make an informed decision about whether the proposed home loan is right for you. You should receive this document both for new mortgages and for refinance mortgages. The document also helps borrowers compare offers from lenders, budget for homeownership, and prepare for close. 

The estimate is known as a “good faith” estimate, which means the numbers aren’t final.

What’s included in the estimate?

You’ll find the following information in your estimate: 

• The interest rate and annual percentage rate (APR)
• Origination charges
• Whether you’re being offered an interest rate lock
• When the lock expires
• Itemized closing costs
• The amount you’ll need to bring to closing
• Estimated taxes
• Estimated insurance
• Estimated assessments
• Loan terms
• Projected payments
• Loan type
• Loan amount
• Prepayment penalties
• Whether the loan includes balloon payments

This information can help you compare lenders, and may even help you negotiate with your preferred lender. 

Click here to view an example of a loan estimate form.

See also: The Role of Appraisals in Home Buying

Using Your Mortgage Loan Estimate

You can use your Loan Estimate in the following ways:

• To evaluate whether you can afford the mortgage.
• To shop for homes within your budget.
• To compare lender offers.
• To negotiate with lenders.
• To save sufficient money for closing.

Your Loan Estimate should reduce or eliminate surprises at the closing table. 

See also: From Application to Approval: A Guide to the Loan Underwriting Process

What happens if the final numbers are significantly different from your mortgage loan estimate?

Certain charges may change between your mortgage loan estimate and your closing disclosure, including:

• Fees for third-party services
• Interest rates (if your rate isn’t locked in)
• Homeowner’s insurance premiums
• Initial escrow account deposits
• Prepaid interest
• Recording fees

Some charges cannot change:

• Appraisal fees
• Lender fees
• Origination charges
• Underwriting fees
• Transfer taxes

You have the right to ask your lender why any rates or fees have changed. If you aren’t satisfied with the explanation, you can change lenders before closing. If the lender made illegal changes, you may have the right to compensation. 

See also: The Complete Guide to Closing Costs for Homebuyers

Apply for Your Next Mortgage With Alex Doce 

Understanding your mortgage loan disclosure is important, but you don’t have to figure it out alone. Working with a trusted advisor makes the process easier and less stressful.

At The Doce Mortgage Group, Alex Doce will take the time to explain every detail of your disclosure and answer all your questions. With his guidance, you’ll not only understand your loan but also find a competitive option that fits your budget and long-term goals.

Schedule your free consultation today.

FAQs

What to look at when comparing loan estimates?

When you compare loan estimates, pay attention to the interest rate, monthly payment, closing costs, and fees. Check if the loan has points, prepayment penalties, or adjustable rates. Look at the total cost over time, not just the monthly amount. This will help you see which loan is more affordable and easier to manage, especially if you’re buying a condo or another type of property.

How accurate is the loan estimate?

Accuracy: Lenders have to give clear and correct details on the official Loan Estimate. This means the interest rate, closing costs, and loan terms are more trustworthy than a basic quote.

What is a loan estimate?

A loan estimate is a three-page form you get from your lender after you apply for a mortgage. It shows important details like the loan amount, interest rate, monthly payments, closing costs, and other fees. You usually receive it within three business days after applying. This form makes it clear what you will pay over time, so there are no surprises later.

What is the purpose of the loan estimate?

The purpose of a loan estimate is to show you all the costs of your mortgage upfront, including taxes and insurance. It lets you compare offers, avoid hidden charges, and find a loan that fits your budget. Meeting home purchase requirements like credit score, down payment, and income proof is key to qualifying.