How to read a Loan Estimate

After you submit an application, the lender generally must give you a Loan Estimate within three business days. An application, for this purpose, means the lender has your name, income, Social Security number, property address, estimated value, and the loan amount you want.

A worksheet, an email with a rate, or a conversation is not a Loan Estimate. Use the official form when you compare lenders, because the sections are standardized.

Page 1 shows the loan terms: amount, interest rate, monthly principal and interest, and whether any of those can rise. It also shows prepayment penalty and balloon status, projected payments that include taxes and insurance, and cash to close.

Page 2 splits costs into loan costs and other costs. Loan costs are origination charges and services such as the appraisal. Other costs include taxes, prepaids, and the escrow deposit. Page 3 has comparisons you can use across lenders: the annual percentage rate, or APR, total interest percentage, and how much principal you pay down in five years.

Line up the interest rate, APR, cash to close, and whether the rate is fixed. A lower rate with high points can cost more upfront than a slightly higher rate with a lender credit. The APR folds in certain fees so it is higher than the note rate. It is a comparison tool, not the rate used to calculate your principal-and-interest payment.

Before closing, the lender provides a Closing Disclosure. Check the rate, the loan amount, cash to close, and the services you were allowed to shop for. Ask about changes you did not expect. MortgageDirectory.com cannot pull a Loan Estimate for you.