How to Read a Loan Estimate (And Compare Two Properly)

The Loan Estimate is a standardised three-page form every lender must provide within three business days of an application. Standardisation is the point — it makes offers genuinely comparable, if you know where to look.

Page 1 — terms and projected payments

Top section: loan amount, rate, principal and interest, and whether each can increase. On a fixed loan, everything except escrow should read “No.”

Middle: projected payments over the life of the loan, including when mortgage insurance drops off. Note the estimated escrow figure — lenders sometimes under-estimate taxes, which flatters the payment.

Bottom: Estimated Closing Costs and Estimated Cash to Close. These are the two numbers most worth comparing across offers.

Page 2 — the itemisation

Section A: Origination Charges

Points, origination fee, underwriting, processing. Zero tolerance — these cannot increase. This is the cleanest comparison between lenders because it is entirely within their control.

Section B: Services You Cannot Shop For

Appraisal, credit report, flood certification. Limited variation between lenders.

Section C: Services You Can Shop For

Title, settlement, survey, pest inspection. The lender must provide a written list of providers. You may use someone else — and in competitive states this is where real savings sit.

Sections E–H

Taxes and government fees, prepaids, initial escrow, and other. Largely determined by your property and closing date rather than your lender — so differences here between two offers usually reflect different assumptions, not different pricing.

Page 3 — comparisons and the AP table

Three figures worth understanding:

• In 5 Years — total you will have paid, and principal paid down. Genuinely useful, and underused.
• APR — rate plus finance charges annualised. See rate vs APR for why this can mislead.
• Total Interest Percentage — total interest as a share of the loan over the full term

Also on this page: whether the lender intends to service the loan, and whether the loan is assumable.

How to compare two offers properly

1. Confirm they are the same product. Same loan type, same term, same rate lock period. A 7/6 ARM against a 30-year fixed is not a comparison.
2. Compare Section A. The purest measure of what each lender charges.
3. Compare the rate at equivalent points. If one includes a point and the other does not, ask both to requote at zero points.
4. Ignore sections E and F when comparing lenders. Taxes, transfer fees and prepaid interest are set by your jurisdiction and closing date, not the lender. Differences here are estimate assumptions.
5. Check Section C. Higher title figures may simply mean one lender used a more expensive default provider — which you can change.
6. Compare “In 5 Years” if your horizon is roughly that.

The most common mistake

Comparing bottom-line “Cash to Close” across lenders. That figure includes prepaid interest, which depends on the assumed closing date, and escrow reserves, which depend on assumed tax figures. Two lenders can quote identical loans and show cash-to-close differing by thousands purely from different assumptions.

Compare Section A plus Section C, at the same rate and lock period. That is the part the lender actually controls.

Common questions