When you first apply for a mortgage, the lender will send you a loan estimate within three days of your application. A loan estimate is a standardized three-page document that outlines the details of your loan including loan program, mortgage rate, monthly payment, and closing costs. While the information in this document is, as the name would imply, an estimate, it’s a great place to start to give you a good idea of the total cost of home financing.
Details in a loan estimate
Your loan estimate will contain the following estimated details about the loan you applied for:
- Loan amount
- Interest rate
- Monthly payment
- Closing costs
- Taxes and other costs
- General loan information
These details can change, and in that case you could receive a revised loan estimate. Again, it’s important to remember that a loan estimate is just that, an estimate. The actual numbers could differ, but it shouldn’t be a significant change.
The Purpose of a Loan Estimate
Loan estimates are provided to borrowers for a few different reasons:
- To allow you to view the details of your loan offer in an easy-to-understand format
- To allow you to easily compare loan offers from different lenders
- To compare against the closing disclosure you’ll receive prior to closing your loan
It’s best to think of your loan estimate as exactly that, an estimate from a lender of the total cost of financing a home. Loan estimates can be used to compare pricing between multiple lenders to determine which lender offers the best pricing and interest rate options. You’ll also want to keep your loan estimate until closing in order to compare the estimate to your final closing disclosure.
A closing disclosure is similar to a loan estimate in that it outlines all of the costs associated with your mortgage, however the difference is that the closing disclosure contains finalized numbers. While they may not match up perfectly, you should expect most costs to be close to what was outlined in the loan estimate. If they’re not, you should reach out to your lender to discuss why there may be cost disparities – there may be an error on the closing disclosure that you’ll be glad you caught!
Now that you’ve learned about loan estimates, if you’re ready to begin the home financing process, get started now!