How to Read Your Loan Estimate

Within three business days of submitting a mortgage application, your lender is required to provide you with a Loan Estimate — a standardized three-page document that lays out your projected loan terms, monthly payment, and closing costs. It’s one of the most useful documents in the mortgage process, and most buyers don’t know how to read it.

Here’s a section-by-section breakdown of what you’re looking at and what to pay attention to.

Page 1: The Basics

Loan Terms (top section) — This is where you’ll find your loan amount, interest rate, and monthly principal and interest payment. Check whether your rate is fixed or adjustable. If it says “YES” next to “Can this amount increase after closing?” for the interest rate, you’re looking at an adjustable-rate mortgage. Make sure you understand what you’re getting.

Projected Payments — This breaks out what your total estimated monthly payment will be, including principal and interest, mortgage insurance (if applicable), and estimated escrow (taxes and insurance). This is the number you’ll actually be paying every month — not just the P&I figure from the rate sheet.

Costs at Closing — Two numbers at the bottom of page one: Closing Costs (the total fees) and Cash to Close (what you’ll actually need to bring to the table, including your down payment minus any credits). This is the number to budget for.

Page 2: The Fee Breakdown — This Is Where to Pay Attention

Section A: Origination Charges — These are lender fees. Origination fees, underwriting fees, points. This is the clearest indicator of how much a particular lender costs you beyond the interest rate. When comparing lenders, compare Section A totals side by side.

Section B: Services You Cannot Shop For — Fees for services the lender selects: appraisal, credit report, flood determination. You can’t choose these providers, so you can’t shop them — just review that they look reasonable.

Section C: Services You Can Shop For — Title insurance, settlement/closing services, title search. You can compare providers for these. Your real estate agent may have recommendations. Shopping Section C can sometimes save a few hundred dollars.

Sections E–H: Prepaids, Escrow, and Other Costs — These are not lender fees. They’re prepaid interest (interest from closing date to your first payment), upfront homeowners insurance, and initial escrow deposits (property tax and insurance reserves). These costs are essentially the same regardless of lender — they’re based on the loan, the property, and timing.

Section J: Total Closing Costs — The grand total of everything above. Then subtract any lender credits (if the lender is offering a credit in exchange for a higher rate) to get your net closing costs.

Page 3: Comparisons and Other Disclosures

Comparisons table — This section shows your Annual Percentage Rate (APR), the total interest you’ll pay over the life of the loan, and how much you’ll have paid in principal and interest after 5 years. The 5-year figure is useful for comparing loans where one has a lower rate but higher upfront fees — you can see the real cost within a realistic holding period.

In 5 years — Shows total payments made and principal paid down after 60 months. Useful for comparing a low-rate/high-fee loan against a higher-rate/low-fee loan if you’re not planning to stay 30 years.

Other Considerations — This section discloses whether the lender intends to service the loan (keep it) or sell it to another servicer. It also confirms appraisal details and other required disclosures.

How to Use It to Compare Lenders

The Loan Estimate is standardized by federal law specifically so you can compare lenders on equal footing. When you get estimates from multiple lenders, compare them line by line — especially:

• Interest rate (Page 1)
• Section A: Origination Charges (Page 2) — the lender’s fees
• APR (Page 3) — rate plus fees as a single percentage
• Total Closing Costs (Page 2, Section J)
• Cash to Close (Page 1) — the bottom line

A lender advertising a lower rate but charging more in Section A fees may cost you more overall. Run the actual numbers — or ask me to help you compare any estimates you’ve received.

What Happens After the Loan Estimate?

The Loan Estimate is not a commitment to lend — it’s an estimate. The final, binding version is the Closing Disclosure, which you’ll receive at least three business days before closing. By law, most fees cannot increase by more than a small tolerance between the Loan Estimate and Closing Disclosure — so you shouldn’t see major surprises at the closing table.

If anything on your Loan Estimate is confusing, call me. Part of my job is making sure you understand exactly what you’re looking at before you commit to anything.

Ready to see what your Loan Estimate would look like? Start with a free call →

Kiley Conner | NMLS# 1453865 | Benchmark Mortgage | Licensed in AR, MO, KS & OK | Equal Housing Lender