How accurate is a loan estimate?
Although it’s just an estimate, the Loan Estimate is very often a reasonable approximation of what your loan will cost. This is because, by law, final loan costs must be within 10 percent of the costs shown on the original LE.
Importantly, you should try to get all your Loan Estimates on the same day. That’s because mortgage rates change on a daily basis. So if you look at different LEs from different lenders on different days, you’re not really comparing apples to apples quotes.
Full list of mortgage Loan Estimate definitions
Loan amount — The home price, minus your down payment
Interest rate — Your annual interest rate expressed as a percentage of the loan amount
Principal and interest — Your monthly payment to the mortgage company. Includes the amount paid toward your loan balance and interest paid to the lender
Prepayment penalty — May be charged if you sell, pay off a big chunk of the loan balance, or refinance within the stated time frame. Not all lenders have a prepayment penalty
Balloon payment — Most loans do not have a balloon payment. This is a special type of loan with lower initial payments, and a large lump-sum payment due at the end
Mortgage insurance — Mortgage insurance is an additional monthly charge, usually required if you put less than 20% down
Escrow — Typically, you pay taxes and insurance in monthly installments along with your mortgage. This money goes into an “escrow” account
Taxes and insurance — What you owe for property taxes and homeowners insurance, divided by 12 to show a monthly charge
Closing costs — Closing costs include all upfront fees charged by your lender and third-party companies to approve, set up, and fund the loan
Cash to close — Cash to close includes closing costs, plus your down payment; this represents the total amount you have to pay out-of-pocket at the closing table
Application fee — Fee to apply for the mortgage. Many lenders do not charge an application fee
Underwriting fee — Fee for the mortgage company to review all your documentation and officially approve you for the loan
Services you cannot shop for — According to the CFPB, “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”
Services you can shop for — According to the CFPB, “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”
Taxes and government fees — The cost to legally transfer the title of the house/property to you
Prepaids — Prepaid homeowners insurance (typically 12 months) due at closing, plus any prepaid mortgage interest
Initial escrow payment at closing — Your first few months’ of homeowners insurance premiums and property taxes to be deposited into escrow, due at closing
Closing costs financed — If any of your closing costs are rolled into the loan balance, that amount will be subtracted from your cash to close
Deposit — Your earnest money deposit will be subtracted from your final cash to close
Lender credits — A rebate offered by the lender to reduce your closing costs. Usually, if there are lender credits, you’re paying a higher interest rate. Make sure you discuss this decision with your lender
Seller credits — If you negotiated with the seller to pay part or all of your closing costs, that amount will be subtracted from your cash to close
In 5 years — The total amount you’d pay toward the loan in five years, including principal, interest, mortgage insurance, and upfront costs
Annual percentage rate (APR) — Your combined interest and loan costs, represented as a percentage of the loan amount. APR is the effective annual rate you’d be paying if all costs were spread out over the life of the loan
Total interest percentage (TIP) — Your total interest cost if you were to pay off the loan in full, represented as a percentage of the loan amount
Late payment — Indicates whether or not there is a fee for being late on your mortgage payment, and if so, what the grace period is
Servicing — Indicates whether the lender will keep your mortgage or transfer servicing to another company. If it transfers servicing, the new company will handle payments and any modifications to the loan in the future.