Loan Estimate Explainer for First-Time Buyers (with Examples) (2024)

Once you get pre-approved for a mortgage, comparing rates is important. However, what’s even more important is how you compare mortgage rates. You can do that with a loan estimate.

When it comes time to get a loan, every lender will provide you with a loan estimate. These estimates will help you decide which loan to choose. Don’t rely on banks to make the best decision for you.

Since everyone is different, we will break it down section by section and show you what is essential and how to compare rates.

Understanding Loan Estimates [and How to Get the Best Mortgage Rates]


  • What is a Loan Estimate?
  • What is Required to Get a Loan Estimate?
  • How to Read a Loan Estimate
  • Page One
  • Page Two
  • Page Three
  • Loan Estimate Example
  • What to Look Out For
  • How to Compare Mortgage Loan Estimates
  • How to Get Lower Loan Costs
  • Final Thoughts

What is a Loan Estimate?

A loan estimate is something that you get from a lender that lists essential information about your loan. It includes information such as the lender’s contact info and factors like the estimated interest rate, loan costs, closing costs, and other costs associated with a home purchase. The Consumer Financial Protection Bureau (CFPB) provides this standard, three-page document.

Once you have this information, you can compare rates from different lenders.

What is Required to Get a Loan Estimate?

To get a loan estimate, here is what is required:

  • name
  • income
  • Social Security number
  • property address
  • estimated value of the property
  • desired loan amount

To get a more detailed estimate from your loan officer, you can also provide information like your debt information, specific loan type, and down payment amount.

How to Read a Loan Estimate

Below is a screenshot of a loan estimate sent to everyone. The sample we’re using exists on the CFPB website.

Loan Estimate Explainer for First-Time Buyers (with Examples) (1)

Tip: Before you start, ensure that your loan estimate has the same fields as the example above. You should request a new one from your lender if it does not.

Page One

We’ll start right at the top.

There is general borrower information at the top of the loan estimate. Ficus Bank is a fictitious bank with a fake address.

Below that, on the left, you’ll find your name. Then the address of the property you’re looking to buy.

Loan Estimate Explainer for First-Time Buyers (with Examples) (2)

On the right, you’ll see the loan term, or how long it will take you to pay it back. The loan term will typically be 15 – 30 years.

Here’s what each of the items means:

  • Loan Term is how long it takes to pay off the loan with regular monthly payments.
  • Purpose is what you’re using the loan to do (buy a home)
  • Product refers to if the loan has a fixed rate or an adjustable rate
  • Loan Type is the type of loan used
  • Loan ID # is a reference number used by the lender in their systems
  • Rate Lock is whether the interest rate has been secured or is still subject to daily market changes

Loan Terms

Below the opening section, you’ll see your loan terms.

Loan Estimate Explainer for First-Time Buyers (with Examples) (3)
  • Loan Amount is the amount you’re borrowing or the amount you’re pre-approved for
  • Interest Rate is how the amount of interest you pay to the lender
  • Monthly Principal & Interest is your mortgage payment, not including property tax or insurance
  • Prepayment Penalty is if there is a fee for paying off the loan early
  • Balloon Payment is if there is an outstanding amount to be paid at the end of the loan term

Projected Payments

Next is the Projected Payments section. This section gets broken into two sub-sections, Years 1-7 and 8-30. It is in two parts because it can vary based on whether or not a mortgage insurance payment is involved.

Loan Estimate Explainer for First-Time Buyers (with Examples) (4)

It is listed 8-30 because this example is a 30-year loan, as shown in the section above.

Let’s take a look at some of the terms in this section:

  • Principalcovers the amount of your monthly payment that goes towards paying down your loan balance
  • Interest covers the amount that goes towards paying interest fees to the lender
  • Mortgage Insuranceis a monthly payment needed that allows buyers to purchase a home with a down payment of less than 20%
  • Estimated Escrow is your monthly payment for property taxes and homeowners insurance
  • Estimated Taxes, Insurance & Assessmentsaccount for property taxes, homeowner’s insurance, and homeowner’s association dues

The payment structure gets broken down into estimated monthly payments, including the mortgage insurance of $82. This fee will get paid every month until paid enough for you to have 20 percent equity or an 80 percent loan to value in your property. In this case, it would be every month for seven years.

Then you’ll see the total of years 1-7 and the 8-30.

Costs at Closing

These estimate closing costs and cash to close refer to totals listed on page two. The Estimated Closings Costs include loan costs, other costs, and lender credits.

Loan Estimate Explainer for First-Time Buyers (with Examples) (5)

The Estimated Cash to Close total refers to the amount of cash you will need up-front when closing on your home. This includes your lender fees, third-party charges, and down payment.

Tip: The majority of page one is estimated. Moving forward, we’ll point out what is most important.

Page Two

The second page is a breakdown of all closing costs and prepaids. We’ll start at the top left.

Loan Costs – A. Origination Charges

The first section is the Loan Costs, and the subheading gathers your Origination Charges, which is the most crucial section on this entire form. Origination Charges combine your Points, Application Fee, and Underwriting Fee.

Loan Estimate Explainer for First-Time Buyers (with Examples) (6)

These origination charges can be called different things by different lenders.

In this case, Loan Amount (Points) refers to an origination fee charged as a percentage of your loan amount. In some cases, you may see a negative number here called a “lender credit.” This credit refers to what the lender receives to help pay closing costs.

  • Application Fee is a cost associated with processing your mortgage loan and can vary based on the lender.
  • Underwriting Fee covers the costs associated with verifying the financial information required to get your mortgage.

Remember, the lender controls this section. Some lenders itemize a dozen different fees, and some include everything in one line item. Another term you may see is Origination or Origination Fee, which is a charge assessed by a mortgage lender to process your loan.

The main number you want to look at is the total, in bold at the top of the section.

Loan Costs – B. Services You Cannot Shop For

Down in section B, you have Services You Cannot Shop For. Those are services that lenders source for you. These include an Appraisal Fee, a Credit Report Fee, Flood Determination Fee, Flood Monitoring Fee, Tax Monitoring Fee, and Tax status Research Fee.

Loan Estimate Explainer for First-Time Buyers (with Examples) (7)

Here’s what they mean:

  • Appraisal Fee is the amount paid to the home appraiser
  • Credit Report Fee is the cost of your credit report
  • Flood Determination Fee is for determining if the home is in a flood zone
  • Flood Monitoring Fee is to monitor flood maps and make sure the house doesn’t fall into a flood zone in the future
  • Tax Monitoring Fee is for tax account monitoring, so the proper parties get notified if there’s ever an unpaid tax bill
  • Tax Status Research Fee is to verify the amount due each year and make sure property taxes get paid on time

Since you can’t shop for them and the lender sources those services to you, the most important number is in bold at the top of section B.

Loan Costs – C. Services You Can Shop For

Services You Can Shop For are good to know, but this is an estimate. These costs can vary from lender to lender based on how they estimate these fees for you.

Loan Estimate Explainer for First-Time Buyers (with Examples) (8)

Most are self-explanatory, but we’ll briefly break them down for you here:

  • Pest Inspection Fee is to have the home inspected for hard to find pests
  • Survey Fee is to confirm that the property lines match what is on file with the county
  • Title – Insurance Binder is a temporary form of real estate insurance coverage related to the transfer of ownership
  • Title – Lender’s Title Policy is to protect the lender against any title dispute that comes up in the future
  • Title – Settlement Agent Fee is for your escrow or closing agent who gathers and disburses all documents and money from buyer and seller in the transaction
  • Title – Title Search is to research and confirm that the property legally belongs to the owner and they have rights to sell it to you

These are important when comparing quotes if the total number varies by a lot of money. If they differ slightly, don’t worry. They’re just estimates.

All of those fees will be consistent across the board when you close on the house, no matter what lender you close.

Loan Costs – D. Total Loan Costs

This section adds up the totals from A, B, and C.

Loan Estimate Explainer for First-Time Buyers (with Examples) (9)

Other Costs – E. Taxes and Other Government Fees

The right-hand column lists your Taxes and Other Government Fees similar to your other costs.

Loan Estimate Explainer for First-Time Buyers (with Examples) (10)

The listed elements and what they mean are:

  • Recording Fees and other taxes get paid to the county for recording the sale as public record
  • Transfer Taxes go to the county for the transfer of the deed from the seller to the buyer

These costs will be the same when you close, no matter the lender.

Other Costs – F. Prepaids

Section F includes your Prepaids. These are estimated costs that you have to pay up-front.

Loan Estimate Explainer for First-Time Buyers (with Examples) (11)

These include:

  • Homeowner’s Insurance Premium is the number of months of homeowners insurance payments that are due up-front
  • Mortgage Insurance Premium is the number of months of mortgage insurance payments that are due up-front
  • Prepaid Interest is the number of days of interest that is due up-front, accounting for the day you close until the end of the month
  • Property Taxes is the number of months of property tax payments that are due up-front

Again, don’t worry about the exact dollar amount in this section because these are only estimates, and they’re going to vary from lender to lender.

Other Costs – G. Initial Escrow Payment at Closing

The Initial Escrow at Closing section is money due at closing, similar to the Prepaids in the previous section.

However, these are different than Prepaids because they go towards setting up your escrow account, which allows you to pay these costs monthly as part of your mortgage payment.

Escrow accounts ensure you won’t be surprised by significant lump-sum payments and make for easy budgeting.

Loan Estimate Explainer for First-Time Buyers (with Examples) (12)

Some of the line items you’ll see here include:

  • Homeowner’s Insurance protects the home and its contents against unexpected damage and events. Flood insurance is separate from homeowner’s insurance and will also show up in this section.
  • Mortgage Insurance allows you to buy a home with less than 20 percent down
  • Property Taxes are the taxes paid to the county or state for owning your home

Other Costs – H. Other

The Other section includes costs that don’t fit in sections A-H. These might consist of title fees like the “Title – Owner’s Title Policy” that you see in the screenshot.

Loan Estimate Explainer for First-Time Buyers (with Examples) (13)

An Owner’s Title Policy protects the buyer against any title dispute in the future.

Other Costs – H. Total Other Costs

Your Total Other Costs section adds sections E-H.

Loan Estimate Explainer for First-Time Buyers (with Examples) (14)

When comparing quotes, make sure that this number is close. It doesn’t have to be an exact match because they are estimated. And when you close, all the costs are going to be the same no matter what lender you go with

That’s not something you’re going to negotiate over.

Other Costs – J. Total Closing Costs

The Total Closing Costs section is your Total Other Costs, plus your Total Loan Costs, minus any lender credits you may receive.

Loan Estimate Explainer for First-Time Buyers (with Examples) (15)

Calculating Cash to Close

Calculating cash to close will be different for every transaction. These differ based on the deposit that you have or haven’t put into escrow.

Loan Estimate Explainer for First-Time Buyers (with Examples) (16)
  • Estimated Cash to Close shows you how much total money will come out-of-pocket (including your down payment) when you’re buying the home.

Tip: Don’t get caught up in estimated figures. It’s good for you to know so you can have a ballpark of how much money it’s going to take to buy the house. But when comparison shopping, those estimates aren’t that important.

Page Three

You’ll find additional information about the lender moving to the third page.

Loan Estimate Explainer for First-Time Buyers (with Examples) (17)

This page includes your mortgage expert’s company name, licensing information, and contact info.


Then there’s your Comparison section. This section shows you three items with simple explanations of each.

Loan Estimate Explainer for First-Time Buyers (with Examples) (18)
  • In 5 Years is the total you have paid in principal, interest, mortgage insurance, and loan costs. Then, just the principal
  • Annual Percentage Rateis your total costs over the loan term expressed as a rate. Note that this is not your interest rate
  • Total Interest Percentage is the total amount of interest you will pay over the loan term as a percentage of your loan amount

Although this is the comparison section, they are estimated figures, so we don’t recommend using them in comparison shopping.

If you must use one of these fields, use the in five years field because that’s the most user-friendly and a decent barometer.

Other Considerations

The Other Considerations section includes special information relevant to your loan. This will look different depending on the type of loan you choose or how much money you put down.

Loan Estimate Explainer for First-Time Buyers (with Examples) (19)

Based on this loan estimate example, here’s a breakdown of what each refers to.

  • Appraisalshelp determine the value of your home and are required for any home purchase
  • Assumptionlets the lender specify whether or not this loan, and its terms, can be transferred to another person if you sell the property
  • Homeowner’s insurance is usually required when buying a home so the home, and its contents, are protected against unexpected events
  • Late Payment is like a phone bill or water bill; you’ll incur late fees if you do not pay on time. The specific fees might differ from what you see in the example
  • Refinanceis the process of replacing your current mortgage loan with a new one. There are certain elements that might affect whether or not you are eligible for a refinance, such as volatile market conditions, property value fluctuations or changes in your finances
  • Servicing refers to collecting and tracking your loan payments. In the example, there are checkboxes with the option for the lender to service the loan or to transfer the servicing to a third party

Loan Estimate Example

You can see the full loan estimate example from the Consumer Finance site or look below.

Loan Estimate Explainer for First-Time Buyers (with Examples) (20)

What to Look Out For

In every loan estimate, there are some things to look out for. The most important is the aforementioned tip to make sure your loan estimate is formatted in the same way as Consumer Finance’s example. Also, these are estimates, so they may change.

And because these are estimates, be wary of the following:

Lenders might underestimate

Lenders out there may not be the most “borrower first.” Lenders may purposely underestimate these costs, especially taxes, insurance, and mortgage insurance.

Underestimating these costs can make their quote look far better than it will be when it comes to closing time.

Lenders might overestimate

Other lenders may purposefully overestimate these costs, knowing that you might ask for lower ones. That way, when it comes time to close the loan, they get to be the hero and provide some good news.

Both of those things are terrible for comparison shopping, and they’re even worse for your budgeting. You want accurate figures. At Homebuyer and plenty of other lenders, these costs get estimated as close to 100 percent accurate as possible.

Remember that numbers are never exact upfront. Don’t worry about any estimated fees that your lender doesn’t dictate.

How to Compare Mortgage Loan Estimates

Concentrate on the top left section of page two of the loan estimate when comparing rates. This section is what the lender has control over.

It doesn’t matter what the origination charges are. It doesn’t matter how they get itemized. It doesn’t matter what the lender labels them as. The only thing that matters is the total amount of origination charges you’re paying and the services you cannot shop for.

If you look above, you have $1,802 in origination charges and $672 in services you cannot shop for. That’s a total of $2,474. The $2,474 is how much the lender is charging to give a rate of 3.875%. That rate gets listed at the top of page one, in the Loan Terms section.

This $2,474 is what it’s going to cost you in loan fees. The lender doesn’t control the prices and costs for anything else.

How to Get Lower Loan Costs

It is possible to get $0 in loan costs, but your interest rate may be higher. Most lenders will give you the option to pay less money out-of-pocket in exchange for a higher interest rate. This option typically results in the buyer receiving a lender credit for the amount of their closing costs.

Conversely, you may be able to pay more money upfront for a lower interest rate and a lower monthly payment.

The choice is yours, and it comes down to your goals and preferences. Be sure to ask your lender if these options would be available to you.

Final Thoughts

We believe that you should be the most educated and prepared home buyer possible. To understand a loan estimate and compare quotes from different lenders, focus on the most critical variables: loan costs and interest rates.

Isolating these makes a loan estimate easier to read and allows you to make a confident decision when working with your lender.

We always recommend comparing rates from multiple lenders before committing to one. The first deal you find might not be the best one for you.

Loan Estimate Explainer for First-Time Buyers (with Examples) (2024)


What is the 7 day rule for loan estimates? ›

Under the TRID rule, credit unions generally must provide the Loan Estimate to consumers no later than seven business days before consummation. Members must receive the Closing Disclosure no later than three business days before consummation.

What does the loan estimate tell you? ›

The form provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan. The Loan Estimate also gives you information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future.

How do you calculate cash to close on a loan estimate? ›

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.

What information does the loan estimate provide to buyers? ›

For the amount, type, and term of the loan you've applied for, the loan estimate will show your projected closing costs, monthly payment, interest rate, and annual percentage rate, among other details.

How soon can you close after le? ›

Like the GFE, the LE does not expire for 10 business days after it is delivered or mailed. Like the GFE, a loan may not close before the seventh specific business day after the LE is delivered or mailed. Like the GFE, a revised LE must be delivered or mailed within three business days of a valid change of circ*mstance.

What is the 3 day rule for loan estimates? ›

The TRID rule requires lenders to provide two disclosure documents to lenders: a loan estimate and a closing disclosure. Because each document must be timed to give the borrower three days to look it over, it's sometimes referred to as the “three-day rule.”

Can you negotiate a loan estimate? ›

Negotiate to get the best deal for you

Negotiating can save you money. Your best bargaining chip is usually having Loan Estimates from other lenders in hand. Often, lenders are willing to match or beat their competitors' offers. They can also explain why their estimates differ from other lenders.

Can closing costs change after loan estimate? ›

The mortgage closing costs may be different if something important changed or wasn't included in your Loan Estimate. It's also possible that your income or assets turned out to be different from what you estimated when you first applied.

What is the rule of thumb for calculating closing costs? ›

What are typical closing costs? According to, home buyers should expect to pay between 2 – 5% of the purchase price of their home in closing costs. So, if your home costs $150,000, you could pay anywhere between $3,000 and $7,500 in closing costs.

What are the four C's of loans? ›

It binds the information collected into 4 broad categories namely Character; Capacity; Capital and Conditions. These Cs have been extended to 5 by adding 'Collateral', or extended to 6 by adding 'Competition' to it (Reference: Credit Management and Debt Recovery by Bobby Rozario, Puru Grover).

What's the difference between cash to close and closing costs? ›

Key takeaways. Cash to close is the total sum you'll need to pay when you close on a home purchase. It includes more than just closing costs, such as prepaid expenses and the remaining down payment.

What documents are needed for a loan estimate? ›

Lenders are required to provide you with a Loan Estimate once you have provided:
  • your name,
  • your income,
  • your Social Security number (so the lender can pull a credit report),
  • the property address,
  • an estimate of the value of the property, and.
  • the desired loan amount.
Apr 3, 2024

What are the 5 C's of credit? ›

Called the five Cs of credit, they include capacity, capital, conditions, character, and collateral. There is no regulatory standard that requires the use of the five Cs of credit, but the majority of lenders review most of this information prior to allowing a borrower to take on debt.

What fees cannot change on a loan estimate? ›

However, there are some fees listed on your loan estimate that legally cannot change. These include fees paid to a broker and transfer taxes. If there are any changes of circ*mstance, you receive a revised loan estimate.

What is the Trid 7 day closing rule? ›

The TRID rule provides that the borrower can waive the seven-business-day waiting period after receiving the LE and the three-day waiting period after receiving the CD if the borrower has a “bona fide personal financial emergency,” which requires closing the transaction before the end of these waiting periods.

What is the timeline for loan estimate? ›

Loan Estimate vs. Closing Disclosure
DocumentWhen you get itWhat it shows
Loan EstimateWithin 3 business days after applying for a loanEstimated loan terms and costs
Closing DisclosureAt least 3 business days before closing your loanFinal loan terms and costs

What is TILA respa 7 day waiting period? ›

The 7-day waiting period is a TILA statutory provision that applies to the initial Loan Estimate that is provided after receipt of an application. The 7-day waiting period does not apply to revised Loan Estimates.

Top Articles
Latest Posts
Article information

Author: Kelle Weber

Last Updated:

Views: 5931

Rating: 4.2 / 5 (73 voted)

Reviews: 80% of readers found this page helpful

Author information

Name: Kelle Weber

Birthday: 2000-08-05

Address: 6796 Juan Square, Markfort, MN 58988

Phone: +8215934114615

Job: Hospitality Director

Hobby: tabletop games, Foreign language learning, Leather crafting, Horseback riding, Swimming, Knapping, Handball

Introduction: My name is Kelle Weber, I am a magnificent, enchanting, fair, joyous, light, determined, joyous person who loves writing and wants to share my knowledge and understanding with you.