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Closing Disclosures Explained
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Loan Estimates Explained

Loan Estimate Explained

Your 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 your loan officer. If something looks different from what you expected, ask why.

Check spelling of your name Check loan term, purpose, product, and loan type Is your rate locked? Check that the loan amount is what you are expecting Is your interest rate fixed or adjustable? Monthly Principal & Interest Prepayment Penalty Balloon Payment Does your loan have a prepayment penalty? Does your loan have a balloon payment? Principal & Interest Mortgage Insurance Estimated Escrow Estimated Total Monthly Payment Does your Estimated Total Monthly Payment match your expectations? Do you have items in Estimated Taxes, Insurance & Assessments that are not escrowed? Estimated Closing Costs Estimated Cash to Close Do you have enough cash on hand to pay your Estimated Cash to Close?

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.

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

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.

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 .

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.

A feature on some mortgages. A prepayment penalty means that the lender can charge you a fee if you pay off your mortgage early.

A feature on some mortgages. 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.

This feature is risky. If your loan includes a prepayment penalty, learn more and ask your lender about your other options.

This feature is risky. If your loan includes a balloon payment, ask your lender about your other options.

Principal is the amount you will borrow.
Interest is the lender's charge for lending you money.

Mortgage insurance is typically required if your down payment is less than 20 percent of the price of the home.

Additional charges related to homeownership, such as property taxes and homeowners' insurance, that are bundled in your monthly payment.

The total payment you will make each month

Are you comfortable spending this much on housing each month?

If so, you will have to pay these costs directly, often in large lump sum payments. Are you comfortable spending this additional amount on housing? Do you know how often you will need to make payments for these costs?

Upfront costs you will be charged to get your loan and transfer ownership of the property. Also sometimes referred to as “settlement costs.”

Total amount you will have to pay at closing, in addition to any money you have already paid.

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.

Compare the Origination Charges to Loan Estimates from other lenders Does your loan include points? 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 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? Origination Charges Points Closing Services Other Costs Lender Credits

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.

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.

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.

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.

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.”

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.

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.

Upfront charges from your lender for making the loan.

An upfront fee that you pay to your lender in exchange for a lower interest rate than you would have paid otherwise.

Third-party services required by your lender in order to get a loan. These services are also sometimes referred to as “settlement services.” You can shop separately for services listed in section C.

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

A rebate from your lender that offsets some of your closing costs. Lender credits are typically provided in exchange for you agreeing to pay a higher interest rate than you would have paid otherwise.

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? Annual Percentage Rate (APR) Total Interest Percentage (TIP) Appraisal Assumption Servicing

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.

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.

The APR is one measure of your loan’s cost.

This number helps you understand how much interest you will pay over the life of the loan and lets you make comparisons between loans.

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.

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.

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Frequently Asked Questions

When you apply

What is my payoff?

Your payoff amount may not be the same as your current balance. Remember that interest in your monthly mortgage payment is paid in arrears. For example, when you make your payment on October 1st, you’re paying the interest that had accrued in the month of September. That means when you apply to refinance on October 1st, your payoff statement will include the unpaid interest for October. Some loan programs such as FHA require an escrow account, while in some other cases when you have 20% equity in a home (your loan is less than 80% of the home value) you may have the option to waive an escrow and pay for things like taxes and homeowners insurance separately. An additional 7 days worth of daily interest is usually included as a buffer and will be returned after the loan has been paid off. Additionally, any other fees that you have incurred but have not paid will be included in the payoff amount.

What are my escrows?

An escrow account is commonly established when purchasing or refinancing a home. The funds from the account go toward your property taxes, homeowner’s insurance and flood insurance or MI (if applicable). Having an escrow account allows to make just one monthly payment and not worry about paying for things like taxes and insurance out of pocket. When you refinance, a new escrow account will be established with your new loan. Your previous escrow account will close out after your new loan is funded, and any remaining balance that you’ve paid into the account will be sent to you (typically 2-3 weeks after closing).

My Closing Costs vs. Prepaids

Closing costs are all fees or charges that are related to originating and closing a mortgage loan. Items such as lender fees, attorney fees, and title fees are considered closing costs. Prepaids are not fees or closing costs. The borrower’s own funds are put into an escrow account and used to pay certain items in advance of when they are due. For example, prepaids can include mortgage insurance and property taxes that are paid prior to closing. They also cover the interest you owe on the loan through the end of the month in which you close.

There was an error in my documents, now what?

When you receive your LE (Loan Estimate), keep in mind that the numbers will be estimates and not exact quotes for your final loan payments. If you find any errors on your documents, or any of your personal information is incorrect, please move forward with signing the LE documents and inform your loan officer of the inaccuracies so they can be adjusted for your Closing Disclosure.

Interest Rate vs. APR

An interest rate on a loan only reflects the amount of interest you will be charged as a percentage of your loan amount. APR is a broader measure of the annual cost of the loan to a borrower expressed as a percentage. For example, the APR includes the interest rate as well as most closing costs, discount points, and other fees. While the Federal Reserve is responsible for setting interest rates, the APR is determined by the lender. Your interest rate is calculated based on a number of factors including your credit score, down payment amount, and loan term. The Truth in Lending Act (TILA), requires that both your interest rate and APR be disclosed to you.