Reading A Loan Estimate, Page By Page

A Loan Estimate is not marketing material. It is a standardised federal disclosure, and every lender required to issue one issues the same form, in the same order, with the same lettered sections. That constancy is the entire point. It exists so two offers can be laid side by side and read like two columns of one ledger.

One clarification before the walkthrough, because it determines whether any of this applies to you. The Loan Estimate and Closing Disclosure pair governs closed-end mortgage credit — a cash-out refinance, a fixed second mortgage, a closed-end home equity loan. An open-end line of credit sits under a different disclosure regime with its own early disclosure and consumer brochure. If you are shopping a line rather than a loan, this form will not arrive, and you will have to reconstruct the same itemisation by asking for it in writing. The draw-to-repayment mechanics piece covers why the two products are disclosed differently.

Page one: terms, payments, and one honest total

Page one opens with the loan terms box — amount, interest rate, monthly principal and interest, and a column of yes/no answers about whether each of those can increase after closing. Read the yes/no column before the numbers. A rate that can adjust and a rate that cannot are not comparable quantities, and the box tells you which one you are holding.

Below that sits projected payments, broken into periods where the payment changes, with estimated taxes, insurance and assessments shown separately and a note on whether those are escrowed.

At the bottom of page one are two figures: estimated closing costs and estimated cash to close. Note them. Do not yet judge them. Both are composites, and one of the components is simply your own money moving.

Page two: the sections that do the work

Page two is the itemisation, and it is already sorted for you into the three buckets described in our line-by-line breakdown.

Section A — origination charges. The lender's own money: origination fee, underwriting, processing, application, and points if any are being charged. This is the lender's revenue on the transaction, and it is the section that varies most between offers.

Section B — services you cannot shop for. Third-party work the lender selects: appraisal, credit report, flood determination, sometimes tax service. Real costs, real vendors, but the lender picked them.

Section C — services you can shop for. Typically title search, lender's title insurance, settlement or closing fee, survey where applicable. The lender must supply a written list of providers it will accept. Using a provider from that list keeps different protections in force than going entirely off-list.

Section D totals A through C as total loan costs.

Section E — taxes and other government fees. Recording fees and any transfer taxes. Set by your jurisdiction.

Section F — prepaids. Per-diem interest, homeowner's insurance premium, any prepaid property taxes.

Section G — initial escrow payment at closing. The opening balance of the escrow account.

Section H — other. Optional items, most commonly the owner's title insurance policy, which the form labels optional because it is.

Section I totals E through H; section J is the grand total, followed by the calculating-cash-to-close table that reconciles J against your down payment, credits, and any adjustments.

Page three: the comparisons nobody opens

Page three carries three figures the industry calls comparisons: what you will have paid in total over the first five years, how much of that will have gone to principal, the annual percentage rate, and the total interest percentage — total interest paid over the loan term expressed against the loan amount.

The five-year figures are the most useful and the least read. They collapse rate, points and fees into a single number over a defined horizon, which is exactly the calculation most borrowers attempt badly in their heads. If two offers disagree on rate and agree on nothing else, the five-year column is the fastest honest tiebreaker.

Also on page three: whether the lender will let you keep a copy of the appraisal, whether the loan is assumable, whether servicing may be transferred, and the late-payment terms.

A reading order that works

1. Page two, section A, across every offer you hold. That is the lender comparison.
2. Sections B and C, looking for a line that is conspicuously out of step with its peers.
3. Sections E, F and G — confirm they are roughly equal across offers, because they should be. If one lender's prepaids are dramatically lower, check the assumed closing date rather than congratulating them.
4. Page three, the five-year figures.
5. Page one terms box.
6. The totals, last.

What the form cannot do

It will not tell you a fee is high. It sorts and labels; it does not judge. It also cannot tell you whether a rate has been bought down with points you did not ask for — for that, read points and the break-even month.

And it assumes a closing date. Change the date, and prepaids change with it, through no fault of the lender.

Borrowing against a home puts the home at risk. This is reporting on how a disclosure form is constructed, not advice on whether to sign one.