Understanding Your Loan Estimate: What’s Included and How to Read It

When financing the purchase of a new home, an important document you will receive is the Loan Estimate. This document outlines the key terms and costs associated with your mortgage loan, helping you compare offers from different lenders and make an informed decision.

What is a Loan Estimate?

A Loan Estimate is a standardized form that lenders are required to provide to borrowers within three days of receiving a completed loan application. This form outlines the estimated costs associated with your mortgage loan, including interest rate, loan term, monthly payments, closing costs, and any prepayment penalties or other fees.

What’s included on your Loan Estimate?

Loan Terms: This section outlines the loan amount, interest rate, loan term, and type of loan (fixed-rate or adjustable-rate).

Projected Payments: This section provides an estimate of your monthly payment, including principal, interest, mortgage insurance (if applicable), and estimated escrow payments for property taxes and insurance.

Costs at Closing: This section includes a breakdown of the estimated costs you’ll need to pay at closing, including lender and third-party fees, taxes, and prepaid items like homeowners insurance and property taxes.

Other Considerations: This section includes information on any prepayment penalties, balloon payments, or other potential fees associated with the loan.

How to read your Loan Estimate:

Review the loan terms: Pay attention to the loan amount, interest rate, and loan term to ensure they match your expectations and needs.

Check the projected payments: Review the estimated monthly payments to ensure they fit your budget and are in line with what you anticipated.

Review the closing costs: Look at the estimated closing costs to ensure they are reasonable and competitive with other lenders.

Check for any additional fees: Review the “Other Considerations” section for any potential fees that could impact your decision.

Compare with other Loan Estimates: Use the Loan Estimate to compare offers from different lenders, ensuring you’re getting the best deal possible.