How to Read a Loan Estimate: A Step-by-Step Guide

Page 1: Loan Terms and Projected Payments

Loan Amount, Interest Rate, and Principal & Interest

The top of page 1 shows your basic loan details: the borrower’s name, the property address, the loan amount, purpose, product type, and loan term. Below that, you’ll find your interest rate and your principal & interest payment — the core cost of borrowing, before taxes, insurance, or mortgage insurance are added in.

Prepayment Penalty and Balloon Payment

Page 1 includes a section asking whether the loan has certain risky features:

• Prepayment penalty — a fee the lender could charge if you pay off the loan early. If present, the CFPB recommends asking your lender about your other options.
• Balloon payment — a final payment that’s a lump sum much larger than your regular monthly payments, sometimes tens of thousands of dollars. If present, this is also worth discussing directly with your lender.

Many loans have neither feature, but it’s worth confirming rather than assuming.

Projected Payments

This section shows your estimated total monthly payment — not just principal and interest, but also estimated amounts for mortgage insurance (if applicable — see our guide to PMI if you’re not sure whether it applies to you), property taxes, and homeowners insurance, if those are collected through escrow. If your loan is an adjustable-rate mortgage, this section may show how your payment could change after the introductory period.

Estimated Closing Costs and Estimated Cash to Close

Near the bottom of page 1, you’ll see summary totals for your estimated closing costs and estimated cash to close — with full detail on both appearing on page 2. Our guide to mortgage closing costs explains what typically makes up these totals.

Page 2: Closing Cost Details

Loan Costs

This section splits into three parts:

• Origination charges — fees your lender charges for processing and underwriting your loan. Not something you can shop for separately.
• Services you cannot shop for — third-party services the lender selects on your behalf, like certain required inspections.
• Services you can shop for — services, like title insurance in many states, where you may choose your own provider.

Other Costs

This section covers items outside the lender’s direct loan costs:

• Taxes and other government fees — recording fees and, where applicable, transfer taxes
• Prepaids — items like prepaid homeowners insurance premiums and prepaid interest
• Initial escrow payment at closing — the deposit that funds your escrow account cushion
• Other — any additional costs specific to your transaction, such as owner’s title insurance if you choose to purchase it

Calculating Cash to Close

Page 2 ends with a calculation that combines your loan costs and other costs, then adjusts for your down payment, any deposits already made (like earnest money), and any seller or lender credits — arriving at your total estimated cash to close.

Page 3: Comparisons and Lender Information

Comparisons

This section is built specifically for shopping around. It typically includes:

• In 5 years — an estimate of the total amount you’d have paid, and how much of your principal you’d have paid down, after five years
• Annual Percentage Rate (APR) — your interest rate plus certain other loan costs, expressed as a yearly rate
• Total Interest Percentage (TIP) — the total amount of interest you’d pay over the loan term, expressed as a percentage of your loan amount

Other Considerations

This section covers additional items, such as whether the lender intends to service your loan directly or transfer servicing, whether the loan can be assumed by a future buyer, and information about late payment fees.

Loan Officer and Lender Contact Information

The form closes with the lender’s and loan officer’s contact information, including their NMLS (Nationwide Multistate Licensing System) identification number — useful for verifying the lender and loan officer’s licensing.

Comparing Loan Estimates From Different Lenders

Lining up these figures side by side — for Loan Estimates received around the same time, since rates can move daily — is one of the most effective ways to see genuine differences between lenders rather than comparing a single number out of context.

A Few Things to Keep in Mind

• The Loan Estimate is based on the information available when it’s issued — it is not a guarantee of your final terms.
• Some figures are allowed to change before closing under specific circumstances; others are more tightly limited.
• Your final terms are confirmed in a separate document, the Closing Disclosure, which you’ll receive before closing and can compare directly against your original Loan Estimate.

Loan Estimate Review Checklist

• Confirm the loan amount, rate, and term match what you expected
• Check for a prepayment penalty or balloon payment
• Review your estimated total monthly payment, not just principal and interest
• Compare total closing costs and estimated cash to close across lenders
• Note the APR and 5-year cost estimate on page 3 for a broader comparison
• Ask your loan officer to explain anything unclear before moving forward

Once you’ve compared your options and moved forward with a lender, your next stop is understanding the fees themselves in more depth — see our guide to mortgage closing costs — and, if a lender offered you the choice, our guide to mortgage points explains the upfront-cost-for-lower-rate tradeoff you may see reflected in your Loan Estimate.