The Loan Estimate is one of the most important documents in the mortgage process. Here is how to decode every section so you can compare lenders with confidence.
A Loan Estimate (LE) is a standardized 3-page form that lenders are required to provide within 3 business days of receiving your mortgage application. It outlines the key terms of the loan you are being offered — rate, monthly payment, closing costs, and more. Every lender must use the same form, making it easy to compare offers side by side.
The first page shows your loan amount, interest rate, whether the rate can increase, and your monthly principal and interest payment. It also shows your projected total monthly payment including escrow for taxes and insurance. Pay close attention to the "Can this amount increase after closing?" flags — these indicate adjustable-rate features.
The bottom of page 1 shows your estimated closing costs and cash to close. Closing costs include origination fees, third-party fees (appraisal, title, etc.), and prepaid items. Cash to close is the total you will bring to the closing table, including your down payment minus any credits.
Section A covers origination charges — what the lender charges for processing your loan. This is where points appear. Section B covers services you cannot shop for (appraisal, credit report). Section C covers services you can shop for (title insurance, settlement agent). Section E covers prepaid items like homeowners insurance and prepaid interest.
Section F is your initial escrow payment at closing. Section G covers other costs like recording fees. The APR (Annual Percentage Rate) shown here is higher than your interest rate because it includes fees — it is a better representation of the true cost of the loan for comparison purposes.
Page 3 shows the total cost of the loan in dollars over 5 years — a useful apples-to-apples comparison between lenders. It also shows the Annual Percentage Rate and Total Interest Percentage (TIP), which is the total interest you will pay over the full loan term as a percentage of the loan amount. Comparing TIP across lenders quickly reveals which loan costs less overall.
When comparing Loan Estimates, focus on: (1) the interest rate and whether it is locked, (2) the total origination charges in Section A, (3) the APR, (4) the cash to close, and (5) any prepayment penalties or balloon payments flagged on page 1. A slightly lower rate with much higher fees may not be the better deal — always look at the full picture.
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