What is a loan estimate? The three-page federal form a lender must deliver within three business days of a mortgage application, setting out the rate, the payment and every closing cost in a fixed order.
A loan estimate is the standard disclosure a lender has to issue once it holds the six pieces of information that make an application: name, income, Social Security number, property address, an estimate of value and the loan amount sought. Regulation Z, at 12 CFR 1026.19(e), gives it three business days from that point. It is three pages, and the order of everything on them is set by rule, which is the point of it: two estimates for the same loan line up figure for figure.
Page one carries the loan terms, whether any of them can increase, the projected payments including taxes and insurance, and the two summary figures, estimated closing costs and estimated cash to close. Page two is the detail: section A origination charges, B services you cannot shop for, C services you can shop for, E taxes and government fees, F prepaids, G the initial escrow deposit and H other. Page three carries the comparisons and the APR. The tolerances hang off those letters. Lender charges and section B are zero tolerance, meaning they cannot rise at closing without a documented changed circumstance. Section C items taken from the lender's written provider list, together with recording fees, may rise by up to 10 percent in aggregate. Prepaids, escrow deposits and any service the borrower shopped outside that list have no limit.
Receiving one commits nobody. The lender may not charge anything beyond a credit report fee until the borrower gives an intent to proceed, and an estimate is only good for ten business days on its terms, so comparisons should be pulled on the same day and against the same loan amount and lock period. The closing disclosure that arrives at the end of the file is the same information in the same order, which is what makes the two comparable line by line.
A worked example
Two estimates pulled the same day on a $360,000 loan, both quoting 6.5 percent on a 45-day lock. Lender A: origination $1,395, no points, section B $1,150, section C $1,700, total loan costs $4,245. Lender B: origination $995 plus one discount point of $3,600, section B $900, section C $1,700, total loan costs $7,195. Same rate and same payment of $2,275, so the difference is $2,950 of cash at closing, and it shows up on page three as a higher APR for lender B.
What those closing cost lines add up to
Questions people ask
Is a loan estimate a commitment to lend?
No. It is a disclosure of the terms and costs a lender is offering based on the application, issued before underwriting has looked at anything. The commitment comes later, after underwriting, and the closing disclosure is what states the final figures.
Can closing costs go up after the loan estimate?
Some can. Lender charges and services the borrower cannot shop for are held at zero tolerance, shopped services from the lender's list plus recording fees may rise by 10 percent in aggregate, and prepaids, escrow deposits and services shopped elsewhere are not capped. A documented changed circumstance can reset those baselines.