How to Read a Loan Estimate — Line by Line

Key Takeaways - Lenders are required to provide a Loan Estimate within three business days of receiving your application - The document is standardized — every lender uses the same format so you can compare accurately - Page 1 shows your loan terms and projected payments - Page 2 breaks down every closing cost with which ones are negotiable - Page 3 shows cash to close and comparisons to help you shop The Loan Estimate is one of the most useful documents in the mortgage process — and one of the most misunderstood. Here is how to read it so you know exactly what you are agreeing to. Page 1: Loan Terms and Projected Payments The top of page 1 confirms basic facts: the lender's name, your name, the property address, the purchase price, and the loan amount. Verify all of these carefully. A wrong address or loan amount on a Loan Estimate can cascade into problems later. The Loan Terms box shows your loan amount, interest rate, and whether either can increase after closing. A fixed-rate mortgage will say NO next to interest rate increase, which means your rate is locked for the life of the loan regardless of what market rates do. The Projected Payments section shows your estimated monthly payment broken down into principal and interest, mortgage insurance (if applicable), and estimated escrow for taxes and insurance. The total monthly payment shown is what you are budgeting for. Page 2: Closing Cost Details This is the section most buyers skip, and it is the most important one for cost comparison. Section A covers lender origination charges — fees the lender charges to make the loan. These are negotiable and vary significantly between lenders. Sections B and C cover appraisal, credit report, title services, and other third-party costs. Some of these (marked with an asterisk) are fixed by regulation. Others you can shop independently. The Loan Estimate specifies which ones you are free to shop for. Section E covers prepaid items — the insurance and tax amounts you fund at closing. These are not negotiable, but they vary by property. Section F covers escrow setup — the initial deposit into your escrow account for ongoing taxes and insurance. Think of it as pre-funding the account. Section G covers recording fees charged by the county. Section H is a catch-all for other costs, including any discount points you are paying to buy down your rate. Page 3: Cash to Close and APR The top of page 3 shows your estimated cash to close — the total you need to bring to the closing table including down payment and closing costs, minus any seller credits or lender credits. The APR (Annual Percentage Rate) shown on page 3 is a useful comparison tool. It incorporates the interest rate plus most lender fees, expressed as a single annual rate. When comparing two lenders' Loan Estimates, APR is a better comparison point than interest rate alone. Using the Loan Estimate to compare lenders Because every lender uses the same standardized form, you can place two Loan Estimates side by side and compare line by line. Focus first on Section A (lender charges), then on the interest rate and APR, then on the total closing costs shown at the bottom of page 2. At KP Funding, we walk every client through their Loan Estimate before they sign anything. If you have a Loan Estimate from another lender that you would like us to compare against, bring it in. We are happy to explain every line. KP Funding Corporation | NMLS #2442789 | Equal Housing Lender | Licensed in Florida | Not a commitment to lend. Rates subject to change.