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Loan Estimate Explainer

A Loan Estimate tells you important details about a mortgage loan you have requested. Use this tool to review your Loan Estimate to make sure it reflects what you discussed with the lender. If something looks different from what you expected, ask why. Request multiple Loan Estimates from different lenders so you can compare and choose the loan that's right for you.

How to use the tool to review your Loan Estimate: Below you'll see the actions you should take to review your Loan Estimate and some handy definitions to know when you do.

The sample Loan Estimate shows you where you'll find information on your own form. When you select any of the items on the Loan Estimate, the tool highlights the information on the image and also highlights the explanation. You can download the sample Loan Estimate if you'd like to print it or just get a better look.

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Sample Loan Estimate

Check the spelling of your name Check loan term, purpose, product, and loan type Check that the loan amount is what you are expecting Understand your monthly principal & interest Are there additional charges are included in your payment? Does your Estimated Total Monthly Payment match your expectations? Do you have items in Estimated Taxes, Insurance & Assessments that are not escrowed? What are your estimated closing costs? Do you have enough cash on hand to pay your Estimated Cash to Close? Rate lock Fixed and adjustable interest rates Prepayment penalty Balloon payment Monthly Principal & Interest Mortgage insurance

Actions to take

Ask the lender to correct any inaccurate contact information. Even minor misspellings can cause big problems later.

Make sure the information matches what you discussed with your lender.

If you are purchasing a new home, check to see that the loan amount plus your down payment equals the sale price of the home. If it doesn’t, ask the lender why.

Principal (the amount you will borrow) and interest (the lender's charge for lending you money) usually make up the main components of your monthly mortgage payment.

Your total monthly payment will typically be more than this amount due to taxes and insurance. See the Estimated Total Monthly Payment.

Learn more about the difference between the principal & interest payment and the total monthly payment

There might be other charges related to homeownership, such as property taxes and homeowners' insurance, that are bundled in your monthly payment. This portion of your payment will come from your escrow account.

Learn more about escrow accounts

This is the total payment you will make each month, including mortgage insurance and escrow, if applicable. Make sure you are comfortable spending this much on housing each month.

Learn more

If so, you will have to pay these costs directly, often in large lump sum payments. Make sure you are able to spend this additional amount, and know how often you will make payments.

Learn more about escrow

Closing costs, or "settlement costs," are the upfront costs you will be charged to get your loan and transfer ownership of the property. They are part of what you will have to pay at closing.

This is the amount you will have to pay at closing, in addition to any money you have already paid. This payment is usually made by cashier’s check or wire transfer. You will need to provide your lender with proof of the source of these funds.

Definitions to know

Some lenders may lock your rate as part of issuing the Loan Estimate, but some may not.

Learn more about what a rate lock is and how it works

If the right-hand column says “YES,” your interest rate is adjustable and can change after closing. Make sure your Loan Estimate shows the type of interest rate you were expecting.

If you have an adjustable rate, your Loan Estimate form will have additional information in the Projected Payments table on page 1 and in two additional tables at the bottom of page 2. See a sample Loan Estimate for an adjustable-rate loan .

Learn more about the difference between fixed and adjustable rates

This feature is risky. A prepayment penalty means that the lender can charge you a fee if you pay off your mortgage early. If your loan includes a prepayment penalty, learn more and ask your lender about your other options.

Learn more about prepayment penalties

This feature is risky. A balloon payment means that the final mortgage payment is a lump sum much larger than the regular monthly payments, often tens of thousands of dollars. If your loan includes a balloon payment, ask your lender about your other options.

Learn more about balloon payments

Principal (the amount you will borrow) and interest (the lender's charge for lending you money) usually make up the main components of your monthly mortgage payment.

Your total monthly payment will typically be more than this amount due to taxes and insurance. See the Estimated Total Monthly Payment.

Learn about the difference between the principal & interest payment and the total monthly payment

Mortgage insurance is typically required if your down payment is less than 20 percent of the price of the home. Ask the loan officer about different options and timeframes.

Learn more

Compare the Origination Charges to Loan Estimates from other lenders Compare the Services You Cannot Shop For to Loan Estimates from other lenders Review the Services You Can Shop For and shop for these services Why are other costs listed? Is the homeowner’s insurance premium accurate? Are the property taxes accurate? Does your loan include lender credits? Is the Estimated Cash to Close what you were expecting? Points

Actions to take

The best way to tell if you have a competitive loan offer is to compare it to Loan Estimates from other lenders. Origination charges are upfront fees charged by your lender, and are an important part of the cost of your loan. When comparing Loan Estimates, make sure to compare the origination charges.

Depending on the lender, origination charges may be more or less itemized. Common origination charges include application fees, origination fees, underwriting fees, processing fees, verification fees, and rate-lock fees. It’s the total that matters.

There are third-party services required by your lender in order to get a loan. These services are also sometimes referred to as "closing services" or “settlement services.”

The services and service providers in this section are required and chosen by the lender. Because you can’t shop separately for lower prices from other providers, compare the overall cost of the items in this section to the Loan Estimates from other lenders.

Some fees in this section may depend on the kind of loan you have chosen. For example, if you have an FHA, VA, or USDA loan, the upfront mortgage insurance premium or funding fee will appear in this section. These fees are usually set by the government program and not the lender. If you have a conventional loan with private mortgage insurance (PMI), any upfront mortgage insurance premium would typically be listed in this section. PMI premiums are set by the private mortgage insurance company, which is usually chosen by your lender.

Learn more about closing costs and who pays them

The services in this section are required by the lender, but you can save money by shopping for these services separately.

Along with the Loan Estimate, the lender should provide you with a list of approved providers for each of these services. You can choose one of the providers on the list. You can also look for other providers, but check with your lender about any provider not on the list.

Learn more about how to shop for these services

These costs are associated with the real estate transaction transferring the property to you and costs associated with owning your home.

The homeowner’s insurance premium is set by the homeowner’s insurance company, not by the lender. You get to choose your homeowner’s insurance company. Comparison shop to find the insurance policy you want and to learn if the amount the lender estimated is accurate for your specific situation. Usually you’ll pay the first 6 to 12 months of homeowner’s insurance premiums at or before closing. Homeowner’s insurance is also sometimes referred to as “hazard insurance.”

Learn more about how to shop for homeowner’s insurance

Property taxes are set by your local or state government, not by the lender. To avoid surprises later, check now to find out whether the lender has estimated these costs accurately. Contact your local tax authority or ask your real estate agent for more information about property taxes in your area.

If there is an amount listed on this line, it means that the lender is giving you a rebate to offset your closing costs. You may be paying a higher interest rate in exchange for this rebate. Did you discuss this choice with the lender? A similar loan may be available with a lower interest rate and without lender credits, if you prefer. Ask the lender what other options may be available to you, and how the other options would impact your interest rate and the total cost of your loan.

Learn more about lender credits and how they work

Your Estimated Cash to Close is the estimated amount of money you will have to bring to closing. This section shows how the Estimated Cash to Close was calculated. Your Estimated Cash to Close includes your down payment and closing costs, minus any deposit you have already paid to the seller, any amount the seller has agreed to pay toward your closing costs (seller credits), and other adjustments.

If the Estimated Cash to Close isn’t what you were expecting, ask the lender to explain why. You will typically need a cashier's check or wire transfer for this amount at closing. The lender you choose will also need to document the source of the funds you bring to closing. Ask the lender about what documents you will need

Definitions to know

Points are an upfront fee that you pay to your lender in exchange for a lower interest rate than you would have paid otherwise. If there is an amount listed on this line, it means that you are paying points to the lender to reduce your interest rate. Did you discuss this choice with the lender? A similar loan may also be available without points, if you prefer. Ask the lender what other options may be available to you, and how the other options would impact your interest rate and the total cost of your loan.

Learn more about points and how they work

Is the information about the loan officer what you were expecting? Use the Comparisons section to compare Loan Estimates How much will it cost if you make a late payment? Appraisal Assumption Loan servicer

Actions to take

Is the loan officer that you are working with listed here? If not, ask questions.

Most loan officers are required to be licensed or registered with the Nationwide Mortgage Licensing System & Registry (NMLS). You can look up the loan officer by name or NMLS ID number in the NMLS database . In most cases, it will tell you whether the loan officer is authorized to operate in your state and whether there are any disciplinary actions on their record.

This section offers several useful calculations to compare the cost of this loan offer with other offers from different lenders. Because loan costs vary both across lenders and across different kinds of loans, it’s important to request Loan Estimates for the same kind of loan from different lenders.

The APR is one measure of your loan’s cost. Learn more about how your APR is different from your interest rate

Total Interest Percentage (TIP) This number helps you understand how much interest you will pay over the life of the loan and lets you make comparisons between loans. Learn more about what this number means

Learn more about how to compare Loan Estimates from different lenders

It’s important to make your mortgage payments on time and in full, every month, to avoid fees and improve your credit record. However, it’s good to know in advance how much the fee will be if your payment is late.

Definitions to know

The lender uses an appraisal to decide how much your home is worth. The appraisal is conducted by an independent, professional appraiser. You have a right to receive a copy.

Learn more about what to expect from your appraisal

If your loan allows assumptions, that means that if you sell the home, the buyer may be allowed to take over your loan on the same terms, instead of having to get a new loan. If your loan does not allow assumptions, the buyer will not be allowed to take over your loan. Most loans do not allow assumptions.

Servicing means handling the loan on a day-to-day basis once the loan is made—for example, accepting payments and answering questions from borrowers. The lender can choose to service your loan itself, or transfer that responsibility to a different company.

Learn more about the difference between a lender and a servicer

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