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What is a Loan Estimate (LE) and how does it work?

By Shelley Sines

February 2025

Buying a home is exciting, but it can also be intimidating when you’re thrust into a whole new world of mortgage jargon and acronyms you may not know. Suddenly, you’re hearing terms like “Loan Estimate” (or LE) and wondering if you need a translator to make sense of things.

Luckily, we’re here to demystify mortgage lingo and help you make sense of the confusing bits so you feel confident every step of the way. Ready to dive in? Let’s go! 

What’s a Loan Estimate?

A Loan Estimate is a 3-page document you’ll receive from your lender when you officially apply for a mortgage loan. Think of it as your road map to understanding the costs and terms of your loan.

The LE provides you with key details about your mortgage, including:

  • The loan amount
  • Your interest rate
  • Monthly payment estimate
  • Estimated closing costs
  • Taxes and insurance projections, include mortgage insurance (if applicable)
  • Special features, like prepayment penalties or whether the loan has an adjustable rate

Lenders are required by law to provide prospective borrowers with an LE within 3 business days of receiving a mortgage application. This ensures the borrowers are informed and the terms of the mortgage loan are transparent.

Why is the Loan Estimate important?

All lenders use a standardized LE template, so borrowers can easily compare offers and review snapshots of a loan’s estimated terms and costs before committing. Loan Estimates make it easy to compare rates, fees and terms, and give borrowers an accurate picture of what their monthly payments and upfront costs could be.

Key sections

Here’s a breakdown of the most important parts of the Loan Estimate:

  1. Loan Terms (Page 1): This section shows your loan amount, interest rate, and monthly principal and interest payment. (Pro tip: Be on the lookout for surprises, like balloon payments or prepayment penalties.)
  2. Projected Payments (Page 1): A breakdown of your estimated monthly payment, including taxes and insurance. Make sure this amount aligns with what you can comfortably afford.
  3. Costs at Closing (Page 2): This part details the upfront fees you’ll pay, such as loan origination charges, appraisal fees, and title insurance. If you’re reviewing multiple Loan Estimates, you’ll want to compare these costs across lenders.
  4. Calculating Cash to Close (Page 2): This shows the total amount you’ll need at closing, which includes your down payment and any prepaid costs.
  5. Comparisons (Page 3): This section projects your costs over 5 years and the total interest you’ll pay. It also gives your APR (annual percentage rate), which reflects the true cost of the loan over time. 

What should you look for when reviewing your Loan Estimate(s)?

  • Take time to compare: If you request Loan Estimates from multiple lenders, make sure you look at all the variables. Price isn’t the only factor in choosing a loan.
  • Ask questions: If something isn’t clear (like a fee or a term), ask your lender to explain it. 
  • Check for accuracy: Make sure details like your loan amount, interest rate and closing costs match what you discussed with your lender. 
  • Watch out for rate expiration: The Loan Estimate includes an expiration date for the quoted interest rate. If you’re not ready to commit by then, you can request to extend it. 

Does getting a Loan Estimate mean you’re 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 loan. After choosing to proceed with the application, your lender will request additional financial information.

The Loan Estimate is key to understanding your mortgage options. Take your time, compare choices, and make sure you ask for clarification. It’s a useful tool to help empower you to make confident and informed financial decisions on your homebuying journey!

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Shelley

Read more articles by Shelley
Shelley Sines has been writing for MGIC since she graduated from college in 2007. Currently raising a sweet little family with her husband in the suburbs of Milwaukee. Happiest when cooking or gardening. Competitive Scrabble player. Enthusiastic about road trips, wine, good TV.
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