Reading a Loan Estimate: What to Look for Before You Commit

Page one of the Loan Estimate contains the most fundamental terms of the proposed loan. Verify that the loan amount, loan type (fixed or adjustable), and loan term (e.g., 30-year) match what you discussed with the lender. Check the interest rate and confirm whether it is locked or floating — a locked rate is protected for a stated period, while a floating rate can change before closing.

Also review the Projected Payments table, which breaks down your estimated monthly payment into principal and interest, mortgage insurance (if applicable), and estimated escrow amounts for taxes and homeowner's insurance. This figure is not your total housing cost, but it is the core number to compare across lenders.

The interest rate and the APR are related but distinct figures. The interest rate is what you pay to borrow the principal. The APR folds in certain lender fees and other costs, expressing the true annual cost of the loan as a percentage. A lender with a slightly lower interest rate but higher fees may carry a higher APR than a competitor — making the APR the more reliable number for apples-to-apples comparison.

A significant gap between interest rate and APR (more than 0.25–0.5 percentage points on a fixed loan) typically signals higher upfront fees. Investigate what is driving that spread before choosing this lender.

Page two itemizes closing costs in two main sections: Loan Costs and Other Costs. Loan costs include origination charges (points, underwriting fees, application fees) and services required by the lender. Other costs cover prepaid items, initial escrow payments, and third-party services such as title insurance and settlement fees.

Services are labeled as either required (lender-chosen, non-negotiable) or shoppable (you can choose your own provider). For shoppable services — often title and settlement companies — getting your own quotes can reduce your closing costs meaningfully. Focus your negotiation energy on the lender's origination section, where fees are most directly within the lender's control.

The bottom of page two shows two important summary lines: Closing Costs (total fees) and Cash to Close (the amount you will need to bring to settlement). Cash to close includes your down payment minus any deposits already paid, plus closing costs, adjusted for any credits from the seller or lender.

Verify that the cash-to-close figure is realistic given your available funds. If it exceeds your budget, ask whether lender credits (in exchange for a slightly higher rate) or seller concessions could reduce the figure. This is also a good point to revisit how your offer was structured — see our guide on structuring a competitive offer for context.

Page three includes the Comparisons table, which projects your total interest paid, APR, and cumulative payments over five years. This section is especially useful when comparing a lower-rate/higher-fee loan against a higher-rate/lower-fee loan — the five-year figure shows which is genuinely cheaper if you stay in the home that long.

Also check the Other Considerations section for details on appraisal, homeowner's insurance requirements, late payment terms, and whether the loan can be assumed by a future buyer. Finally, note the lender's contact details and confirm you are working with a licensed entity in your state.

A Loan Estimate does not obligate the lender to fund your loan, but it does set a clock. Lenders generally require you to indicate your intent to proceed — typically in writing — before they will order an appraisal or advance your application. If you do not respond within the timeframe specified by the lender (often 10 business days), the estimate may expire and rates could change.

Once you decide which lender to move forward with, provide your intent to proceed promptly. At that stage, begin preparing for the next phase: a thorough due diligence review of the property and transaction documents.