Reading a mortgage loan estimate

A Loan Estimate tells you the important details of a mortgage you've requested, so you can check that the loan matches what you discussed with the lender. When something looks different from what you expected, ask the lender why.

Page 1: the loan and the payment

• Your name and the loan. Check the spelling of your name, and the loan term, purpose, product and type. Even a minor misspelling can cause problems later.
• The loan amount. On a purchase, the loan amount plus your down payment should equal the sale price.
• Principal and interest. Principal is the amount you borrow, and interest is the lender's charge for lending it. They usually make up most of the monthly payment.
• Estimated total monthly payment. This is what you'll pay each month, including mortgage insurance and the escrow amount for property taxes and homeowners insurance, if those apply.
• Taxes, insurance and assessments not in escrow. Anything listed here, you pay directly, often in large lump sums.
• Adjustable rate. A "YES" here means the interest rate can change after closing, and the form adds tables showing how.
• Prepayment penalty and balloon payment. Both are risky features. A prepayment penalty lets the lender charge a fee if you pay the mortgage off early. A balloon payment makes the last payment a lump sum much larger than the monthly ones, often tens of thousands of dollars.
• Mortgage insurance. It's typically required when the down payment is less than 20 percent of the price.
• Rate lock. Some lenders lock the rate when they issue the estimate, and some don't.
• Estimated cash to close. This is what you'll bring to closing, usually by cashier's check or wire transfer, on top of anything already paid. The lender will need proof of where the money came from.

Page 2: the closing costs

Closing costs, or settlement costs, are the upfront costs of getting the loan and transferring ownership of the house.

• Origination charges. The lender's own upfront fees, such as application, origination, underwriting, processing, verification and rate-lock fees. Lenders itemize them differently, so the total is what matters.
• Points. An upfront fee paid to the lender in exchange for a lower interest rate.
• Services you cannot shop for. Services the lender requires and picks, such as an FHA, VA or USDA loan's upfront mortgage insurance premium or funding fee.
• Services you can shop for. Services the lender requires but you can buy separately. Ask the lender for its list of approved providers, and check with it about one that isn't on the list.
• Homeowners insurance and property taxes. The insurance company sets the premium, often with 6 to 12 months paid at or before closing. The local or state government sets property taxes.
• Lender credits. An amount here is a rebate toward closing costs, often in exchange for a higher interest rate.

Page 3: comparisons and other terms

• Loan officer. The Nationwide Mortgage Licensing System & Registry (NMLS) database shows whether a loan officer can work in your state and any disciplinary actions.
• Comparisons. The APR is one measure of the loan's cost, and the Total Interest Percentage shows how much interest you'd pay over the life of the loan.
• Late payment. The fee for a late payment.
• Appraisal. An independent appraiser decides what the home is worth for the lender. Ask the lender for a copy.
• Assumption. Whether a buyer could take over the loan on the same terms if you sell. Most loans don't allow it.
• Servicer. The company that takes payments and answers questions. The lender can keep that job or hand it to another company.

An annotated example

What to do next

Check your name, the loan amount and the loan type against what you discussed with the lender, and ask about any line that doesn't match. Look up the loan officer in the NMLS database, and keep the Loan Estimate with the rest of the house papers.