Reading a Loan Estimate

The top box, and the one worth reading twice. It states how much you are borrowing, the interest rate, and the monthly principal and interest — the part of the payment that actually pays off the loan.

Beside each figure is a column asking whether it can increase after closing. On a fixed-rate loan the answers should be no. If any of them says yes, that is the single most important thing on the page and the thing to ask about first.

The last two lines ask whether the loan has a prepayment penalty or a balloon payment. Both are questions about what happens if you pay early or if a large amount comes due at the end.

What the monthly payment is made of, and how it changes over the life of the loan. Principal and interest, then mortgage insurance if it applies, then estimated escrow.

This is where people find out the payment is larger than the loan payment they had in mind. Escrow is money collected with your payment to cover property taxes and homeowners insurance — it is not a lender fee, it is your own money held and paid out on your behalf.

If the table shows more than one period, the payment is scheduled to change. Ask why. On many loans it is mortgage insurance dropping off; on others it is something you want to understand fully.

Two figures, and they are not the same thing. Estimated closing costs are what it costs to do the transaction. Estimated cash to close is the total you need to bring, which normally includes your down payment as well.

Confusing these two is the most common misreading of the whole form. The larger number is not a fee.

The lender's side of the bill, broken into three parts: charges for originating the loan, services you cannot shop for, and services you can.

That third list matters. The form tells you explicitly where you are allowed to choose your own provider, and you are given a separate written list of options. Shopping those is one of the few levers you actually control.

Everything that is not the lender's charge: taxes and government recording fees, prepaid interest and insurance, and the initial deposit into your escrow account.

These are largely set by your property and your closing date rather than by the lender, which is why two lenders can quote very similar numbers here.

The arithmetic that gets from the costs above to the amount you actually bring. It shows the down payment, deposits already made, any seller credits, and adjustments.

If the number surprises you, this table is where to find out why rather than asking for the total again.

Three standardised figures designed for one purpose: putting two lenders' estimates side by side. What you will have paid in five years, the annual percentage rate, and the total interest percentage.

Because every lender must calculate these the same way on the same form, this is the fairest place to compare offers — fairer than comparing interest rates alone.

Appraisal, assumption, homeowner's insurance, late payment, refinancing, and servicing. Short lines, easy to skip, and occasionally the most consequential text on the form.

The servicing line tells you whether the lender intends to service your loan or transfer it to someone else — worth knowing before you close rather than after.