What is a loan estimate and how do I read it?

A Loan Estimate is a standardized three-page form that lenders must provide within three business days of your mortgage application. It shows your loan terms, projected payments, closing costs, and the cash you will need to close, in a format designed to make offers easy to compare.

Because every lender uses the same form, you can lay two Loan Estimates side by side and compare them directly. That standardization is the document's whole purpose.

The first page shows the loan terms, your projected monthly payment, and your closing costs and cash to close. The second page itemizes the closing costs in detail, including lender fees, title charges, and third-party services, plus your loan costs over five years. The third page lists additional disclosures about your loan's features.

Read all three pages, not just the payment. The details on the second page, where the fees live, are where the real cost differences between lenders appear.

To compare lenders, line up the same line items on each estimate and compare the totals. Look at the interest rate, the APR, the closing costs, and the cash to close. One lender may quote a lower rate with higher fees, while another balances the two differently.

Keep the estimates as similar as possible: same loan amount, same loan type, and same down payment, or the comparison is not fair. Then compare the bottom-line costs over the time you will keep the loan.

The Loan Estimate is your early snapshot, and the Closing Disclosure is the final version at closing, and they should be similar. Certain costs are locked, and changes beyond a small tolerance require explanations. Comparing the two documents catches fees that grew after you committed.

Hold on to your Loan Estimate after you close, because you will compare it to the Closing Disclosure and, later, to any refinance quotes.