What Is a Loan Estimate and How Do I Read It?

What is a Loan Estimate for a first-time buyer in Orange County? It's the lender's written estimate of what your loan will look like if you move forward.

I'm Jeanette Nelson, a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas. I want first-time buyers to understand their numbers before they write an offer, and this form is where those numbers start.

The Consumer Financial Protection Bureau (CFPB) explains that the Loan Estimate is three pages long and shows your estimated interest rate, monthly payment and total closing costs.

One thing to know: the CFPB is clear that a Loan Estimate is not an approval or a denial. It shows the terms the lender expects to offer if you go ahead.

Page 1 is the big picture. The CFPB suggests checking:

• Loan amount. Your loan plus your down payment should equal the purchase price.
• Monthly principal and interest, plus the Estimated Total Monthly Payment, which adds mortgage insurance and escrow.
• Taxes, insurance and assessments that are not paid through escrow.
• Estimated closing costs and Estimated Cash to Close.
• Loan features. Whether the rate is locked, whether it is fixed or adjustable, and whether there is a prepayment penalty, balloon payment or mortgage insurance.

If your rate is not locked, the CFPB notes it can change at any time. For more on timing, see what is a mortgage rate lock and when should I lock my rate.

Page 2 breaks down your closing costs. The CFPB groups them like this:

• Origination charges. The lender's upfront fees. Compare this total across lenders.
• Services you cannot shop for. Services the lender requires and chooses for you.
• Services you can shop for. Required services where you may pick your own provider from the lender's list.
• Other costs. Homeowners insurance and property taxes, set by your insurer and by government, not the lender.
• Lender credits and points. Credits can come with a higher rate. Points are paid to lower the rate.
• Calculating Cash to Close. How the lender added up your down payment, closing costs, deposit and any seller credits.

For a fuller look at closing day, see what will I pay at closing as a first-time buyer.

Some can, and the rules depend on the type of cost. The CFPB describes three groups:

1. Can go up by any amount. Prepaid interest, homeowners insurance premiums and initial escrow deposits, plus services you shopped for with a provider not on the lender's list.
2. Cannot go up at all, unless there's a change in circumstances. Fees paid to the lender, the broker or their affiliates for required services, and transfer taxes.
3. Can go up by up to 10% in total, unless there's a change in circumstances. Recording fees and required third-party services from the lender's list.

A change in circumstances can include a different loan type, a new down payment, an appraisal that comes in higher or lower, or a change in your credit or income. In that case, you'll likely receive a revised Loan Estimate. The CFPB says that if costs go over the allowed limits without a change in circumstances, you're entitled to a refund of the difference.

Page 3 lists the loan officer's details, which you can check in the NMLS database, plus a Comparisons section with the APR and Total Interest Percentage. The CFPB suggests getting Loan Estimates from several lenders for the same type of loan and comparing them line by line.

For questions to bring to each lender, see what questions should I ask a lender before I apply.

Later, about three business days before closing, you'll receive a Closing Disclosure. The CFPB recommends comparing it to your Loan Estimate and asking about anything that changed.

This is general information, not lending advice. Your lender can walk you through your own form.

If you have a Loan Estimate in hand and want to talk through what it means for your home search, I'd love to help. Call or text me at 714.366.8575 | DRE: 01397168, or contact me.