Everything You Need To Know About Loan Estimates Or ‘Good Faith Estimates’

After you apply for a mortgage, a lender will provide a Loan Estimate. Once known as a Good Faith Estimate, a Loan Estimate is a standardized three-page breakdown of the key details you’ll need to consider before committing to a loan.

What Is A Loan Estimate?

A Loan Estimate is a standardized form that provides important details about the mortgage you’re applying for, including your estimated interest rate, monthly mortgage payment and closing costs.

Because every lender uses a standardized mortgage Loan Estimate template, borrowers can easily compare loan offers. Receiving a Loan Estimate from a lender doesn’t mean you’re approved for or locked into a loan. A Loan Estimate simply gives you a snapshot of a loan’s estimated terms and costs before you commit to the mortgage.

The Loan Estimate has been around since 2015. Before then, a lender may have sent you two documents after you submitted your mortgage application: a good faith estimate and a truth-in-lending disclosure statement. In 2015, the federal government combined the two forms to create the Loan Estimate, a standardized document that made it easier for borrowers to understand and compare loan offers.

What Items Appear On A Loan Estimate?

The Loan Estimate is a three-page form containing detailed information about the mortgage loan you’re applying for. We break down the form so you can easily read through the information on each page.

If you have questions or feel overwhelmed by the volume of information you need to digest, you can ask the lender to walk through the document. Whether you’re a seasoned or first-time home buyer, refer to our glossary of mortgage terms to seamlessly navigate the document.

To ensure you don’t miss anything important, we’ve summarized the critical details of each page.

Page 1

• Date Issued
• Applicant(s) Name
• Property Address
• Sale Price
• Loan Term
• Loan Purpose
• Loan Type
• Rate Lock (yes or no)
• Loan Terms
  • Loan Amount
  • Interest Rate
  • Monthly Principal & Interest
  • Prepayment Penalty (yes or no)
  • Balloon Payment (yes or no)

• Projected Payments
  • Principal & Interest
  • Mortgage Insurance
  • Estimated Escrow
  • Estimated Total Monthly Payment
  • Estimated Taxes, Insurance, & Assessments 

• Costs at Closing
  • Estimated Closing Costs
  • Estimated Cash to Close 

The information on page one that matters most for loan affordability is the Estimated Total Monthly Payment and the Estimated Cash to Close. To compare general affordability between lenders, refer to the information in the Loan Terms and Projected Payments sections.

Page 2

Loan Costs

A. Origination Charges

• Mortgage Points
• Application Fee
• Underwriting Fee

B. Services You Cannot Shop For

• Appraisal Fee
• Credit Report Fee
• Flood Determination Fee
• Flood Monitoring Fee
• Tax Monitoring Fee
• Tax Status Research Fee

C. Services You Can Shop For

• Pest Inspection Fee
• Survey Fee
• Title – Insurance Binder
• Title – Lender’s Title Policy
• Title – Settlement Agent Fee
• Title – Title Search

D. Total Loan Costs (A + B + C)

Other Costs

E. Taxes and Other Government Fees

• Recording Fees and Other Taxes
• Transfer Taxes

F. Prepaids

• Homeowners Insurance Premium (6 months)
• Mortgage Insurance Premium
• Prepaid Interest
• Property Taxes

G. Initial Escrow Payment at Closing

• Homeowners Insurance
• Mortgage Insurance
• Property Taxes

H. Other

• Title – Owner’s Title Policy (optional)

I. Total Other Costs (E + F + G + H)

J. Total Closing Costs

• D + I
• Lender Credits
• Calculating Cash to Close
• Total Closing Costs (J)
• Closing Costs Financed (Paid from your Loan Amount)
• Down Payment/Funds from Borrower
• Deposit
• Funds for Borrower
• Seller Credits
• Adjustments and Other Credits
• Estimated Cash to Close

On page two, the lender will break out individual estimated closing costs. Section B outlines the nonnegotiable loan services with fixed prices set by the lender. Section C lists the services you can shop around for. You may be able to find a better price than the lender’s estimate and save money.

Page 3

●  Lender Name and Contact Information

●  Loan Officer Name and Contact Information

●  Mortgage Broker Name and Contact Information

●  Comparisons

○      In 5 years

■  Total paid in principal, interest, mortgage insurance and loan costs

■   Principal you will have paid off

○      Annual Percentage Rate (APR)

■  Your costs over the loan term expressed as a rate. This is not your interest rate.

○      Total Interest Percentage (TIP)

■  The total interest you’ll pay over the loan term as a percentage of your loan amount.

●      Other considerations

○  Appraisal

○  Assumption

○  Homeowners Insurance

○   Late payment

○   Refinance

○   Servicing

●      Confirm Receipt

○    Applicant(s) signature

On page three, you’ll find the lender’s information and summarized loan details for comparison, including the Annual Percentage Rate (APR) and Total Interest Percentage (TIP). You can use this information to compare multiple loan offers. When you compare lenders, you’ll see how the cost of a loan can vary depending on the lender you choose.

Tips For Reading A Loan Estimate

Within the three pages of a Loan Estimate, you’ll find a lot of mortgage terminology and numbers. We’ve compiled a few helpful tips to simplify understanding and navigating a Loan Estimate.

• Ask your lender to explain: Talk to the lender to ensure you understand all the terms and costs in the Loan Estimate. A lender can explain the numbers and answer questions over a call or meeting.
• Look at Calculating Cash to Close on Page 2: Cash to close includes the estimated down payment and closing costs. Having these numbers upfront will help you gauge whether you can afford the loan.
• Look at Estimated Total Monthly Payment on Page 1: Review this figure to help ensure it's affordable for your homeownership budget.
• Look at In 5 Years on Page 3: Use the information in this section to compare lender loan offers and assess which offer provides the best value.

Use all the valuable information in the Loan Estimate form to compare lenders and pick out an affordable mortgage. Prioritize understanding the sections highlighted in our list of tips to get a clear picture of what each loan offers.

Mortgage Loan Estimate FAQs

Borrowers frequently ask the following questions about Loan Estimates.

When do I get a Loan Estimate?

By law, lenders must send borrowers a Loan Estimate within 3 business days of submitting a completed mortgage loan application.

How long is a Loan Estimate good for?

You can usually find the expiration date of a Loan Estimate at the top of page one. Generally, a Loan Estimate expires 10 business days from the date it was issued. Check with the lender if you’re not sure how long your Loan Estimate is valid.

Does getting a Loan Estimate mean I’m approved?

Receiving a Loan Estimate from a lender isn’t the same as loan approval. A Loan Estimate only breaks down the costs and terms of a mortgage loan. It’s your chance to review the loan’s terms and decide whether to commit to the home loan. After choosing to proceed with the application, your lender will request additional financial information.

Are Loan Estimates required?

A mortgage lender is required to provide you with a Loan Estimate by law. You should receive it within 3 business days of submitting your completed home loan application.

Are Loan Estimates and Closing Disclosures the same?

A Closing Disclosure details the final costs of your mortgage loan. The disclosure has all the same information and uses a format similar to a Loan Estimate, allowing borrowers to easily compare the two documents. Double-check that the loan details on your Closing Disclosure are correct. Once you sign the disclosure, you’re agreeing to the loan’s terms.

The Bottom Line: Loan Estimates Provide Valuable Information

The Loan Estimate covers the key details of a loan, such as loan terms, projected payments, closing costs and estimated cash to close. It gives borrowers a clear picture of a mortgage loan’s costs and terms, empowering them to compare lender offers and choose the best financing option for their budget.

If you’re ready to get started, Rocket Mortgage^® is here to help you every step of the way. Begin the mortgage approval process today.