Understanding your loan estimate is one of the most important steps in the mortgage process. This standardized, three-page document breaks down all the essential details of your home loan offer, including the interest rate, monthly payments, and closing costs. In this loan estimate explainer, we’ll walk through each page to help you understand what to look for and how to use the information to compare offers.

Why the loan estimate matters

Whether you're a first-time homebuyer or a seasoned homeowner, the loan estimate is one of the most valuable documents in the mortgage process. 

It’s designed to make it easier for borrowers to understand the true cost of a mortgage and to compare offers from different lenders. All lenders are required to use the same format, so you can make apples-to-apples comparisons.

Issued within three business days of submitting a completed loan application, the loan estimate includes standardized language and layouts to help reduce confusion. This loan estimate explainer will walk you through each of the three pages so you know what to look for and how to use it.

Page 1: Loan summary and projected payments

Page 1 gives you the most important snapshot of your mortgage: your loan terms, your projected monthly payment, and your total estimated closing costs. Here’s how it breaks down:

Loan terms

• Loan amount: The total amount you're borrowing
• Interest rate: Whether it's fixed or adjustable
  Monthly principal & interest: Your base monthly payment, excluding taxes and insurance
• Prepayment penalty or balloon payment: Whether you'll be charged for early payoff or face a lump sum later
  
  

Projected payments

• Timetable: Year-by-year breakdown of your total monthly payment, including escrow items
• Taxes, insurance, and assessments: Estimated monthly costs for property taxes, homeowners insurance, and other required items

Costs at closing

• Estimated closing costs: Total of lender and third-party fees
• Estimated cash to close: The amount you’ll need to bring to closing, including down payment and other costs

This first page is where you can quickly compare different offers by interest rate, monthly payments, and upfront costs. If you're comparing multiple loan estimates, this page helps you identify which lender may be offering the best deal overall.

Page 2: Closing cost details

Page 2 provides a more detailed breakdown of the estimated closing costs. It's divided into two main sections: Loan Costs and Other Costs.

Loan costs

• Origination charges: These are fees charged by the lender for processing your loan, including points if you’re buying down your interest rate
• Services you cannot shop for: These include the appraisal, credit report, flood certification, and other required services selected by the lender
• Services you can shop for: These are services you can choose your own provider for, like title insurance or the closing agent

Other costs

• Taxes and other government fees: Includes recording fees and transfer taxes
• Prepaids: Covers things you prepay at closing, like homeowners insurance and prepaid interest
• Initial escrow payment: These are the funds held by the lender for taxes and insurance
• Other: May include optional services like owner's title insurance or real estate commission credits

Calculating cash to close

This section tallies up all your upfront costs, subtracts any credits or deposits, and shows exactly how much cash you’ll need to bring to closing. It includes:

• Total closing costs
• Down payment
• Deposit or earnest money you’ve already paid
• Lender credits

Use this page to identify where fees are coming from and what you can potentially shop around for or negotiate. For example, if one lender’s origination charges are higher than another’s, that might factor into your decision.

Page 3: Comparisons, other considerations, and contact information

Page 3 helps you see the bigger picture of the loan over time and includes important legal and logistical information.

Comparisons

This section is often overlooked but can be one of the most useful when comparing loan estimates. It includes the:

• Total payments in the first five years
• Principal paid in the first five years
• Annual percentage rate (APR), which is a broader measure of cost that includes interest and fees
• Total interest percentage (TIP), which expresses the total interest you’ll pay over the life of the loan as a percentage of the amount borrowed

These numbers help you understand the long-term cost of your loan. A lower APR or TIP might indicate a better deal, even if the interest rate is slightly higher.

Other considerations

Here you’ll find additional key information, including:

• Whether the loan can be assumed by another borrower
• Whether the lender intends to service your loan or transfer it
• Late payment policies
• Refinance options

Contact information

This section lists the key players in your loan transaction, including the lender’s loan officer, your real estate agent (if applicable), and other relevant contacts.

Make sure all contact information is correct and that you know who to reach out to if you have questions or need clarification.

How to use this loan estimate explainer when comparing offers

By reviewing each page of the Loan Estimate closely, you can spot differences between offers that may not be obvious at first glance. Here’s how to put this loan estimate explainer into action:

• Start with page 1: Compare the loan amount, interest rate, and estimated monthly payment.
• Move to page 2: Examine origination fees, third-party charges, and overall closing costs.
• Finish on page 3: Review APR, TIP, and long-term projections to evaluate the total cost over time.

Don’t just go with the lowest monthly payment. Look at the full picture to make sure you're choosing the most cost-effective loan over the life of your mortgage.

Getting your loan estimate 

A loan estimate isn’t just a formality. It’s a powerful tool that helps you understand, compare, and choose the right mortgage for your financial situation. By understanding each page and what to watch for, you can confidently compare offers, ask the right questions, and avoid surprises down the road.

This loan estimate explainer is your roadmap to decoding mortgage terms and costs so you can shop smart and close with confidence.

Ready to put this loan estimate explainer to work? First, you need to compare personalized mortgage offers from top lenders. That means finding which lenders offer you the best rate — and we can help there. With our rate tables, you can see what leading lenders can offer you based on your unique financial parameters. 

‍