SHARE
A loan estimate gives you the opportunity to know the details of the mortgage before you accept and compare offers from different lenders to determine which works best for you. Here’s an overview of what you’ll find on your loan estimate and how it can help you choose the best mortgage option.
What is a Mortgage Loan Estimate?
After you’ve submitted a mortgage application to a mortgage lender, they will send you a loan estimate. This three-page document details every part of the mortgage offer: the loan type, interest rate, the process of how principal and interest will be paid over time, and the types of fees that will have to be paid upfront along with the down payment.
A loan estimate allows you to compare the numbers on different offers before accepting one. In some cases, you can even use a loan estimate from one lender to argue a better offer from another.
What Information Appears on a Loan Estimate?
There’s a lot of information to digest on the three pages of a loan estimate, and it’s important to read it over quickly to get the ball rolling on moving forward with the home-buying process.
Loan Terms
Loan terms cover what type of loan you’re applied for and what terms apply to it.
- Type of Loan: Your loan terms will be specific to the type of loan you applied for. An FHA loan typically requires 3.5% down and charges interest rates that are a little lower than conventional loans. If you’re eligible for a VA loan or want a 15-year loan instead of a 30-year, this will affect your interest rate and penalties that apply.
- Interest Rate: The loan terms will detail the interest rate that the lender wants to charge on the loan. A fixed-rate loan will have an interest rate that remains the same over the lifetime of the loan, whereas an ARM (adjustable-rate mortgage) will have a rate that reflects changes in national rates. ARM loan estimates will include additional information on how your interest rate will change over time.
- Purpose of the Loan: The loan purpose noted on your estimate details what the loan will be used for, whether for purchase or refinance. The loan purpose will play a factor in the interest rates and payment terms as well.
- Prepayment Penalties and Balloon Payments: Your loan terms also include information about the end of your loan (which is important even if it feels like a long way off!). Some loans include prepayment penalties that will apply if you want to pay off the loan in a shorter time frame. Others have balloon payments, which lower initial monthly payments but require a much larger payment towards the end of the loan.
Projected Payments
A second section of the loan estimate will detail the projected payments of the mortgage. This details the different fees that make up your monthly payments.
- Principal and Interest: Most of your monthly payments will be made up of principal and interest that are combined into a fixed payment for a fixed-rate loan or a series of payments that change over time for an ARM.
- Mortgage Insurance: Many types of loans include a monthly mortgage insurance payment (which is different from homeowner’s insurance) that helps insure your loan in the case that you default on future payments. This will appear as an additional monthly payment.
- Taxes and Insurance in Escrow: Most lenders will require something called escrow, which is an account held by a neutral third party for your homeowner’s insurance and property taxes. By having oversight and access to this account, lenders can make sure that you are making these payments on time. Payments towards escrow will often be made as a part of your overall monthly payment and will be deposited by the lender into the escrow account, from where it is distributed to homeowner’s insurance and property tax payments.
Closing Costs
This section of the loan estimate details the closing costs that come with the loan, including your down payment and fees. These costs will have to be paid on the closing date, so it’s important to know that you’ll be able to have enough cash on hand to cover them.
- Cash to Close: Your cash to close is determined by the complete amount of fees that have to be paid on the date of close. This includes your down payment (minus any payment you have already made to the seller), initial payments to escrow, and origination fees.
- Fees: Your mortgage comes with a handful of payments that vary by lender. Some of these are due directly to the lender, while others go to the third-party insurance or title fees.
Fees that go to the lender are known as fees that you can’t shop for, and they include the cost of appraisal, credit report, and tax monitoring that the lender carried out for your specific loan.
There are other fees that can be shopped around for (meaning that you can compare rates and terms), mostly involving your property’s title search and policy.
Comparisons
On the third page of the loan estimate, you’ll find breakdowns of how interest and principal will be paid off throughout the loan along with the estimate’s APR and TIP.
An APR rate takes your interest rate and all of the additional fees charged by the lender and combines them into one percentage rate. APRs are calculated the same way for each lender, allowing you to quickly compare rates when you have multiple offers.
Similarly, the TIP (Total Interest Percentage) shows the total amount of interest compared to your property value that you will pay over the life of the loan. Longer loan terms will have larger TIPs, making this another valuable tool when comparing loan options.
Other Considerations
The last section of the loan estimate is titled “Other Considerations” and includes information about other requirements that come with the loan, like terms to refinance, insurance standards, and late payment penalties. These will also differ by lender and can greatly impact how your loan will impact your financial future.
How to Get a Loan Estimate
To get a loan estimate, you’ll have to provide the lender with all of the information concerning the property you’re interested in, your proof of funds or employment, and your financial history on a mortgage application. The application will take some time to fill out and will require official documentation including your social security number, tax records, income statements, and record of debt.
Loan Estimate vs. Closing Disclosure
It’s important to know that your loan estimate, while detailed, still only provides approximate numbers and is not an official record of the payments and rates associated with the loan. When you decide to move forward after looking through the loan estimate, your lender will send a closing disclosure three days before your closing date to give you enough time to look over the final numbers and ask any follow-up questions.
Using Your Loan Estimate
What is a mortgage loan estimate? Essentially, it’s an approximate breakdown of all of the numbers that affect your monthly payments and your closing costs. This includes anything from how principal and interest are paid off over time to the tax payments that will be held in escrow from your monthly payments. An estimate gives you the opportunity to compare a mortgage with other options to find out which set of payments and fees works best for you.
Ready to Begin an Application?
This page last updated: March 21, 2022
Read more on this topic below.
Mortgage insurance is something millions of homeowners pay for each year. However, this type of insurance does not protect the...
When you first set out to buy a home, it can feel like you’re taking an exam you forgot to study for. You have to make quick...
Buying a home can be a challenge for a lot of people. Between the credit score requirements, debt to income ratios, and down...
Modular homes, also known as prefabricated homes, have come a long way in recent years. As technology continues to...
Interested in buying a new construction home? Good for you! The ability to influence the final outcome of the home is a...
If you’re preparing to buy a home, you have likely already read up on what kind of documentation is needed to...
When looking to buy or refinance a house, the pre-qualified vs pre-approved mortgage debate can be...
Some homebuyers refuse to purchase a property if it is part of a property owner association. On the...
A mortgage is often the largest monthly expense that people pay. The thought of reducing the amount...
If you are falling behind on your monthly mortgage payments or are concerned that you may not be able to make...
There are a few main reasons why people consider refinancing their mortgages. You need to consider what your main goal is with refinancing. If there...
REO, or real estate owned, properties can be a great investment. The value of REO foreclosures makes these...
Rental properties are one of the best and prevalent investments in the real estate world. From providing stellar tax...
Buying a foreclosed home can be a great opportunity when it’s done correctly. You could end up with a...
When it comes to property ownership, there are several ways that people can hold titles. Tenancy in common (TIC) is...
Research indicates that 58% of homeowners in HOA communities and single-family homes pay an average monthly fee of $250....
People buy their homes for a number of reasons. Affordability, stability, and comfort are some of the most...
Many people choose to purchase an existing home to live in, but maybe your dream is slightly different. Perhaps your...
Loan originators are the people who help you find a loan that suits your financial needs. They work for banks,...
A home appraiser plays a big part in the majority of homeowners looking to refinance their homes.
What is a 5/1 ARM loan? When it comes to different financing types, you can score for buying or refinancing homes....
A home doesn’t just fall into foreclosure status. There are stages and processes that take place behind the scenes before...
It’s very likely that your mortgage loan will be the largest loan you have during your lifetime. Mortgages are not a one...
Seller concessions, sometimes referred to as seller contributions, are made during the purchase of a home. They are...
Realizing you might not be able to pay your upcoming mortgage payments can be stressful. Whether your source of income has...
Refinancing your home can save you thousands of dollars per year! When you extrapolate that savings over...
For many people, owning a home is part of the American dream. To make this dream a reality, most people will need to take...
Whenever you’re looking to buy a house, you’ll quickly realize there are a lot of fees associated with obtaining a mortgage....
Have you decided this is the year to buy a new home? Good for you! When you begin your research for the right mortgage loan for you, you’re...
A bridge loan is a short-term loan a borrower may use while a more long-term financing contract is finalized. Bridge...
Just imagine how life-changing it would be if there were a friendly, knowledgeable professional on your side...
Conventional loans are mortgage loans offered by private lenders, banks, and institutions that are not backed by the government. Unlike FHA,...
There’s a lot of expenses to keep in mind when you’re thinking about buying a home. Between the price of the home, property taxes, your mortgage...
Most of us are aware of the difference between single-family homes and large apartment buildings, but what...
A home equity loan is a loan option that enables homeowners to borrow money based on how much equity they have built up in their home. If you...
For homeowners and prospective homebuyers alike, few documents carry as much legal weight as the house deed. But if you’re...
In the mortgage community, the term “jumbo loan” is used to describe a mortgage that exceeds the limit established by the Federal Housing Authority...
There are many moving parts and various people you’ll deal with throughout the process of purchasing a...
If you’re looking to buy a house, and do not have a mountain of cash saved up, you’ll need to consider getting a mortgage to help you finance this...
Of all the moving pieces of the puzzle that makes up the home-buying process, the mortgagee clause is one that’s often easy to forget,...
If you’ve been thinking of selling your house or buying a new property recently, odds are you’ve probably heard the...
Considering the complexities of today’s real estate market, many potential buyers are asking themselves,...
With low-interest rates and minimal upfront payments, the USDA loan is an excellent option for low- and moderate-income buyers interested in rural...
What is an ARM, and how does it work? Here, we’ll discuss the ins and outs of adjustable-rate mortgage options and see if an...
What is a Cash-In Refinance?
If you’re making high monthly payments on a mortgage but can’t qualify for a refinance, you might have heard of...
Your Debt-To-Income ratio, or “DTI” for short, is essentially all of your monthly debt payments divided by your monthly gross income. DTI is...
If you find a property that you’re highly interested in buying but are concerned that the seller might choose...
If you’re buying a home, it’s nearly impossible to avoid hearing someone talk about escrow. This may be a foreign word as it’s...
Fannie Mae is a government sponsored enterprise (GSE) that makes homeownership possible for millions of Americans. If you’re interested in buying a...
In times of economic hardship, like the present economic events caused by the COVID-19 pandemic, many homeowners...
Freddie Mac is a government-sponsored enterprise (GSE), which the congress created in 1970. The original...
When you’re in the process of buying a home, you’ll often work with a single real estate agent who will...
You finally found your dream home. You’re already envisioning what color to paint the kitchen and turning that room on the main floor into...
Private Mortgage Insurance, or “PMI” for short, is the type of insurance that you may be required to pay with a mortgage loan.
Insurance offers financial protection, helping you in times of need. One excellent and necessary type of insurance is property and...
Buying a home? You’ll likely need to get it appraised before you receive the clear to close. If you’re wondering...
The vast majority of mortgage loans require you to put down a certain percentage of the selling price upfront....
If you’re an active service member, a veteran, or the spouse of a veteran, and you want to purchase a home...
In today's day and age, there are a lot of reasons why homeowners are looking for new mortgage...
Purchasing a condominium is a home purchase; however, condo financing differs from conventional...
There’s no doubt, COVID-19 changed the world in countless ways and took us all by surprise. From an...
Whenever you are borrowing money, whether it’s for a mortgage, credit card, or car loan, you’ll hear the terms...
When purchasing your dream home, the first question you should ask yourself is, “How much can I afford?” From there, it’s also wise...
If you have gone through the preapproval process but need to take a deeper dive into how much house to buy,...
Buying a house is one of the most important investments you will ever make. Your home will be your safe place and your sanctuary from...
Owning a home is an investment. Like any investment, a house has an opportunity to appreciate or...
Buying a home can be more difficult if you have a low yearly income or have trouble saving up the money...
The All-Encompassing Mortgage Refinance Checklist
Refinancing opens up great opportunities for homeowners to cash out on equity, reduce...
Whenever you apply for a new mortgage, you’ll be required to provide the lender with what seems like an...
The interest rate on a mortgage is simply the fee a lender charges the borrower for borrowing their money. Over the...
One of the most important parts of preparing to buy a home is having a solid credit score. Building up your credit over time...
A cash-out refinance is the process of taking the equity you have built in your home in the form of a cash deposit into a designated account...
Whether you’re a first-time buyer or you’ve purchased a home before, you’ve likely heard of a homeowner’s association....
Shopping for a mortgage is one of the most challenging and arduous parts of purchasing your home. During this...
While it’s exciting to put in an offer on a home and have it accepted, it’s by no means the end of the...
Owning a home has always been part of the American dream. The desire to purchase a home has been exacerbated by COVID-19...
If you’re new to buying a home, you probably have quickly realized the overwhelming amount of options there...
No one ever buys a home expecting to go delinquent on their mortgage payment. However, various economic and financial...
Consider this scenario. You bought a house several years ago, and at the time, you thought you got a pretty great...
If you’ve already gone through the lengthy process of writing offers, securing financing, and arranging inspections for your...
One of the most important steps to buying a home is deciding on a mortgage loan and deciding on a loan involves settling on a good...
FHA and conventional loans are the two most popular loan options available to nearly every buyer. While it’s...
One of the biggest challenges of purchasing a home is saving up enough money for the down payment. Despite...
First time home buyers are often surprised when they learn about all of the expenses that are associated with ...
In addition to other costs associated with homeownership, property taxes have to be paid to state and/or...
Purchasing real estate is not as simple as finding the right home, submitting an offer, and signing the closing paperwork; many...