Loan Estimate Explained: What You Need to Know

Estimated reading time: 6 minutes

A Loan Estimate is a standardized 3-page form provided by your lender within 3 business days after applying for a mortgage. It includes important details about what your mortgage could look like if you agree to use that lender, including projected costs, its type and terms, and closing costs.

However, this document can be confusing for borrowers, especially if you’ve never purchased a home before. Understanding your mortgage Loan Estimate can help you compare loan options between lenders, estimate your closing costs, and avoid surprises before closing. Let’s break down what you can find on your Loan Estimate and how to interpret the data.

What Exactly is a Loan Estimate?

Your mortgage lender is required to send out your Loan Estimate within 3 business days of receiving your mortgage application. It is a standardized 3-page form that includes important details about your proposed mortgage, including the loan’s basic information, projected estimated monthly costs, estimated closing costs, and any special features, like prepayment penalties or increases to the mortgage balance.

When you receive your Loan Estimate, be sure to go over it with your Loan Originator if there’s any information that doesn’t seem right.

Do Loan Estimates Look Different from Lender to Lender?

Mortgage lenders are required under federal TRID regulations and the Consumer Financial Protection Bureau (CFPB) to send Loan Estimates with a standardized design and format. This standardization makes it easier for borrowers to compare loan offers and understand the information presented.

What Information is Included in a Loan Estimate?

Your Loan Estimate includes a breakdown of the expected costs and terms of your loan. This includes, but is not limited to:

• Your offered loan amount – the total amount of money you plan to borrow, also known as your loan’s principal.
• Your estimated interest rate – the price you pay to borrow money from your lender.
• The estimated amount you will pay each month for your loan’s principal and interest.
• Your estimated closing costs – these are the expenses and fees you pay when you finalize your home purchase, many of which are paid for on closing day.
• Your loan type and term – this includes the loan program you choose, if your interest rate is adjustable or fixed, and how long you will pay your mortgage for.
• APR – APR stands for annual percentage rate and includes your loan’s interest rate as well as any additional costs associated with the loan.

Is a Loan Estimate the Same as a Closing Disclosure?

While both documents outline borrower costs, a Loan Estimate has distinct differences from a Closing Disclosure. Whereas a Loan Estimate is delivered to you within 3 business days after applying, your initial Closing Disclosure must be received by the borrower no later than 3 business days before closing.

At McGlone Mortgage, we send out our initial Closing Disclosures at least 7 days before your closing. Additionally, a Loan Estimate only shows projected costs before underwriting. A Closing Disclosure, on the other hand, breaks down the exact costs a borrower should expect to pay at closing.

Can Anything on Your Loan Estimate Change Before Your Mortgage Closing?

Lenders are generally required to provide Loan Estimates in good faith. The TILA-RESPA Integrated Disclosure rule (also referred to as TRID) requires lenders to disclose certain information to borrowers. TRID helps borrowers compare mortgage costs and loan terms more easily. Under TRID regulations enforced by the CFPB, certain fees are subject to limits on how much they can increase before closing.

Certain costs can change before closing, depending on changes to your loan application or property details, such as your interest rate that has not locked and certain closing costs.

If something happens, such as the property being appraised lower than the sales price or your lender being unable to document certain parts of your income, you will likely receive a revised Loan Estimate with new cost information.

Does Receiving a Loan Estimate Mean You’re Approved for a Mortgage?

A Loan Estimate is not a mortgage approval or commitment to lend. As the name suggests, it’s simply an estimate of what your loan and its terms could look like if you decide to move forward with that lender. A Loan Estimate is issued before underwriting, which is the process used to determine whether you’re approved for a mortgage by analyzing your information against program and secondary market guidelines.

Do All Loan Programs Require a Loan Estimate?

While most conventional, FHA, VA, and USDA mortgage loans require a Loan Estimate, some loan products are generally exempt from TRID disclosure requirements, such as HELOCs or reverse mortgages.

What Do You Need to Provide for a Loan Estimate?

At minimum, you will need to provide the following on your mortgage application to your lender to receive a Loan Estimate:

• Your full legal name
• Your income
• Your Social Security number (which is used to pull your credit report)
• The property address
• An estimate of the property value
• Desired loan amount

These 6 pieces of information generally trigger the lender’s requirement to issue a Loan Estimate. However, the more information your lender has, the more accurate your Loan Estimate may be.

Why is a Loan Estimate important?

A Loan Estimate helps borrowers compare mortgage lenders and costs, budget for closing costs, and understand their expected monthly payment before committing to a mortgage. Because the Loan Estimate outlines projected costs upfront, borrowers can better financially prepare before closing.

Here to Help You Understand Your Loan Estimate

If you have questions about your Loan Estimate or mortgage options, contact a McGlone Mortgage Loan Originator. They will work closely with you to ensure you understand any paperwork provided during your loan process.