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May 2017

Understanding the Loan Estimate

As you enter into the world of homeownership, you’ll encounter a variety of terms that may or may not be familiar to you. One of which is the “Loan Estimate.” The Loan Estimate is a three-page form that outlines all of the details of your prospective loan. You’ll receive the Loan Estimate after submitting your loan application. By law, a lender is required to provide you with the Loan Estimate within three business days of application submission.

If you have purchased a home in the past, you may remember this document being called the Good Faith Estimate or GFE. As of October 2015, the GFE was replaced with the Loan Estimate.

It’s important to note that the details of this form are only an estimate, which is contingent upon your loan approval. The estimated figures are subject to change, and final financial figures are provided later in the final settlement document before you close on your home. The form is broken down into the following sections:

Basic details

In the header section of the Loan Estimate you’ll find basic details and the summary of your prospective loan. Be sure to review this information closely to ensure everything is correct and in alignment with what you and your lender have discussed.

Included are the following details:

  • Date: When the loan estimate is issued

  • Applicant details: That’s you — be sure to triple check that your name/current address is correct

  • Property: Address of your prospective home

  • Sale price: Price of the prospective home

  • Loan term: Duration of the loan in years

  • Purpose: In most cases, the purpose of your loan will be “purchase”

  • Product: Fixed or adjusted rate

  • Loan type: Conventional, FHA, VA, or other

  • Loan ID: Be sure to write this down or highlight for future reference

  • Rate lock: You may choose to “lock” your interest rate. This means that the rate will not change between the date issued and your closing date. Your Loan Estimate will identify if your interest rate is locked, and what is called your rate lock period. A rate lock period is the number of days past “locking in” your interest rate that you must go to settlement.

Loan terms

This section dives a bit deeper into the details of your loan, beyond those in header of the Loan Estimate. A new addition to this section is information on whether these terms can or cannot change after closing — a nice upgrade from its predecessor the Good Faith Estimate.

The loan terms outlined in this section are as follows:

  • Loan amount: Double check to ensure this is the amount you were expecting. In most cases, the loan amount plus the down payment should equal the sale price of the prospective home. If it doesn’t, ask your lender why.

  • Interest rate: Note whether your rate is adjustable or not. If this section says “yes,” there will be more information in the “projected payments” section. Don’t stress, I’ll go over this below.

  • Monthly principle and interest: An estimate of what your principle + interest will look like each month. More details on monthly payments are outlined in the “projected payments” section.

  • Prepayment penalty: Some lenders may charge a fee if you pay off your mortgage early. If this section says “yes,” there will be more details regarding the amount and the window of time in which the fees will apply.

  • Balloon payment: Loans with a balloon payment may require a larger-than-standard one-time payment at the end of the loan term. If this section is marked with “yes,” there will be more details regarding the amount and dates for this payment. In some cases, this means your payments may be lower in the years prior to the balloon payment, with larger amounts due toward the end.

Projected payments

Here comes the fun: the calculations of your Estimated Monthly Payment. Jokes aside, reviewing this section is a great way to evaluate whether this loan is within your means. Be sure to closely review, and ask yourself if you are comfortable spending the estimated amount each month. Outlined in your projected payments are following item lines, that together help calculate your Estimated Monthly Payments):

  • Principal and interest: This was mentioned before in the Loan Terms section, but here it is again, but with a little more detail and breakdown.

  • Mortgage insurance: This is your monthly costs for mortgage insurance.

  • Estimated escrow: Here, your lender will outline whether an escrow account is required for your prospective loan. An escrow account is created by your lender, to which you make payments. The lender will then use the funds in your escrow account to apply to property taxes and insurance premiums related to your home.

Also included in the projected payments section are the estimated taxes, insurances and assessments. There will be more details on these fees on the next page titled “closing cost details.”

Costs at closing

The moment of truth. This section outlines the Estimated Cash to Close, or how much money you’ll need to bring to closing, should you accept this loan (contingent that all terms remain).

Closing costs details

This page is presented in a worksheet format and calculates all the costs associated with your prospective loan. In short, the closing cost details provide a line-by-line breakdown of the figures outlined on the previous page.

Other information

This section on the final page of your Loan Estimate provides details on the lender, loan officer and mortgage broker (if applicable).


You as the homebuyer have the right to compare your Loan Estimate to those from other lenders. Selecting a home loan is a big decision, so be sure to shop around for the loan that is right for you and your financial situation. This section outlines three calculations that will help you when weighing out your options. Luckily, the Loan Estimate is standard for ease of borrower review.

Other comparisons

This section outlines important things to consider that are specific to this loan and the lender such as the need for appraisal, assumption terms, homeowner’s insurance, late payment penalties, refinancing, and servicing.

Confirm receipt

You’ve made it to the end of the Loan Estimate! This is where you provide your John Hancock confirming you have received and read the full estimate. Note: signing here does not mean you accept this loan, only that you received the Loan Estimate.

The path to homeownership is full of research, financial figures, and decisions. Luckily, forms such as the Loan Estimate exist to summarize and help you better understand your loan details and options.