Within three business days of submitting a full mortgage application, your lender is legally required to give you a Loan Estimate (LE). It's a standardized three-page document that every lender uses the same format for — which means you can compare two LEs side by side from different lenders and actually see which one is better.
Most buyers scan it, feel overwhelmed, and trust their loan originator to explain what matters. That's fine if you trust them. This post is for when you want to understand it yourself.
Page 1 — The basics
Loan Terms
Page 1, top right box
Loan Amount
The amount you're borrowing, not the purchase price. Should match what you discussed. Verify this is correct.
Interest Rate
The rate on the loan itself. This is not the APR. The APR (on page 3) includes fees and is always higher — use APR to compare lenders, not this number alone.
Monthly P&I Payment
Principal and interest only. Your actual monthly payment will be higher once you add taxes, insurance, and possibly PMI.
Prepayment Penalty
Most conventional loans today say "NO." If it says YES, ask why and understand the terms before proceeding.
Balloon Payment
Almost always NO for a standard 30-year fixed. A balloon payment means the full remaining balance is due at a specific date. Rare but important to check.
Projected Payments
Page 1, middle section
Estimated Total Monthly Payment
This is the number that matters day-to-day. It includes P&I, mortgage insurance (if any), and estimated escrow (taxes + insurance). Some lenders break this into two columns if PMI drops off after a few years.
Mortgage Insurance
Shows up here if you're putting less than 20% down on a conventional loan, or on any FHA loan. Note the monthly amount and, importantly, whether it eventually drops off.
Estimated Escrow
Monthly amount set aside for property taxes and homeowners insurance, managed by the lender and paid on your behalf. This is an estimate — your actual taxes may differ.
Costs at Closing
Page 1, bottom section
Closing Costs
Total of all fees — lender fees, third-party fees, prepaid items, and initial escrow setup. This is the headline number. The breakdown is on page 2.
Cash to Close
The amount you need to bring to the closing table. This is your down payment plus closing costs minus any credits. This is the real money-out-of-pocket number.
Page 2 — The fee breakdown (where it gets interesting)
Page 2 is where you see exactly what you're being charged and by whom. It's divided into sections A through H.
Section A — Origination Charges
Page 2, top left
What's here
Every fee the lender charges directly: origination fee, underwriting fee, processing fee, application fee, and any points you're paying to buy down the rate. This is what varies most between lenders and is worth comparing carefully.
Points
1 point = 1% of the loan amount paid upfront to reduce your rate. Sometimes labeled "discount points." A lender quoting a low rate with 2 points is a different offer than one quoting a slightly higher rate with 0 points — run the math on how long it takes to break even.
Lender credits
Shown as a negative number here if you're taking a higher rate in exchange for the lender covering some costs. Can lower your cash to close at the expense of a higher monthly payment.
Sections B & C — Services You Can/Cannot Shop For
Page 2, top right
Cannot shop (Section B)
Services required by the lender where you must use their provider: appraisal, credit report, flood determination. These costs are relatively standard and don't vary much.
Can shop (Section C)
Services where you can choose your own provider: title insurance, settlement agent/escrow, survey. You can get competing quotes on these. On a California transaction, title and escrow fees are meaningful — worth shopping.
Sections E, F, G — Taxes, Prepaids, and Escrow Setup
Page 2, bottom
Prepaids (Section F)
Money collected upfront for interest, insurance, and taxes that will come due before your first escrow payment kicks in. This isn't a fee — you're prepaying costs you'd owe anyway. Includes prepaid interest from closing date to end of month, first year homeowners insurance premium, and property taxes.
Initial Escrow Payment (Section G)
The initial deposit into your escrow account so there's a cushion for future tax and insurance bills. Typically 2–3 months of taxes and insurance. Again, not a lender fee — it's your money going into an account you own.
Page 3 — Comparisons and what to focus on
Comparisons Table
Page 3, left column
APR
Annual Percentage Rate — the most important number for comparing lenders. APR folds in the interest rate plus most lender fees, expressed as a single annual rate. A lender with a 6.75% rate and $8,000 in fees may have a higher APR than a lender with a 6.875% rate and $2,000 in fees. Always compare APR, not just rate.
Total Interest Percentage (TIP)
The total interest you'd pay over the full loan term as a percentage of the loan amount. Useful for understanding the long-run cost but assumes you keep the loan for 30 years — most people don't.
In 5 Years
How much you'll have paid total and how much will be principal (equity) after 5 years. Helpful for comparing loan structures if you're not sure how long you'll stay.
Red flags to watch for
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A rate that seems unusually low. Check whether it comes with points (Section A). A rate 0.5% below competitors is often the result of paying 1–2 points upfront. Do the math on break-even before deciding if it's worth it.
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Origination fees that don't make sense. Lender fees above 1% of the loan amount on a standard conforming loan deserve an explanation. Some lenders bury fees under creative names — "administrative fee," "document preparation fee," etc. Ask for an itemized breakdown.
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The LE doesn't match what you were quoted verbally. A verbal quote is not binding. The LE is. If the numbers changed, ask specifically what changed and why before proceeding.
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Missing information on page 1. If the loan amount, rate, or loan term are left blank or marked as estimates, the LE is incomplete. A lender is required to provide a complete LE within 3 business days of receiving your full application.
How to compare two Loan Estimates
When you have LEs from two lenders, compare these in order:
- APR (page 3) — the most apples-to-apples comparison
- Cash to close (page 1) — total money you need at the table
- Section A total (page 2) — what the lender specifically is charging you
- Monthly payment (page 1) — the ongoing cost
- Points paid (section A) — make sure you're comparing the same rate structure
If one lender has a lower rate but higher fees, calculate how long it takes for the monthly savings to offset the upfront cost. That's your break-even. If you plan to stay past that break-even, the lower rate is worth it.
You are entitled to an LE from any lender you apply with. Shopping two or three lenders before committing is standard practice and won't significantly hurt your credit score (multiple mortgage inquiries within 14–45 days are typically treated as one). Any lender who discourages you from getting another quote is not acting in your interest.
Have a Loan Estimate you want to walk through?
Send it over or bring it to a call. I'll read it with you line by line and tell you honestly what I see — whether or not you end up working with me.
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