Your Loan Estimate, line by line

The Loan Estimate is the most useful document you will be handed in this process and the one people skim hardest. It arrives as three dense pages, the eye goes to the interest rate, and the rest is filed unread.

That is a shame, because the form was deliberately designed to be compared. Every lender in the country must disclose the same items, in the same order, on the same form, with the same wording. Two Loan Estimates side by side will line up section for section. Nothing else in the transaction works that way.

So here it is, block by block. The example running through this page is an ordinary North Dallas purchase — $525,000, 10% down, 6.625% fixed for 30 years — and it is an illustration, not a quote.

Before the form: when you get one, and what it is not

A lender must deliver a Loan Estimate no later than the third business day after you apply, and no later than the seventh business day before closing.

"Applying" is not a feeling or a formality. It has a legal definition — six pieces of information:

1. Your name
2. Your income
3. Your Social Security number (to pull credit)
4. The property address
5. An estimate of the property's value
6. The loan amount you want

Hand over those six things and the clock starts. You cannot be charged anything beyond a reasonable credit-report fee until you have received the Loan Estimate and told the lender you want to proceed.

Two things it is not. It is not an approval — underwriting has not happened yet. And it is not the same thing as the "fee worksheet", "cost summary" or "scenario sheet" that sometimes arrives instead. Those are marketing documents with no legal force. The Loan Estimate has the title Loan Estimate at the top and says PAGE 1 OF 3 at the bottom. If you asked for one and got something else, ask again.

Rate lock is the sleeper item in that block. If it says NO, every number on the form is a snapshot of a market that moves daily, and a quote from last Tuesday is not comparable to one from today. If it says YES, note the expiry date — that is the deadline the rest of your process is really running against.

The other date matters too: the closing-cost estimates expire on a stated date, and the lender must honour the terms for at least 10 business days from issue. Sit on it for three weeks and the lender may reprice with no explanation owed to you.

Loan Terms

Most people read the left column. The right column is the point.

"Can this amount increase after closing?" is the question the form exists to answer, and on a plain fixed-rate loan every answer is NO. That uniform column of NOs is the disclosure. On an adjustable-rate loan the answers change, additional tables appear on page 2, and the form starts telling a different story — which is exactly what it is designed to make impossible to miss.

Prepayment Penalty and Balloon Payment should both read NO on a normal residential purchase. A YES on either is not necessarily disqualifying, but it is a conversation, not a footnote.

Note also that Monthly Principal & Interest is only principal and interest. It is not your payment. The form says as much, in italics, immediately underneath — and it is the single most common misreading of this document.

Projected Payments

Here is the payment. Three things are worth stopping on.

The two columns. The payment changes at year eleven because mortgage insurance falls away. At 10% down, PMI must be removed automatically once the scheduled balance reaches 78% of the original value — month 111 on this loan. The form is required to show you the payment after that event, which is a quiet kindness: it is the only place anyone tells you the increase has an end date.

"Estimated Escrow — amount can increase over time." That italic line is doing real work in Texas. Your escrow holds property tax, and property tax here is high and reassessed annually. On a new build it is often assessed on the lot for the first year and on the finished house afterwards — which is how a payment rises by several hundred dollars in year two with nothing having gone wrong. Read the MUD and PID guide if you are buying north of Frisco, because a district assessment lands in this same line.

The HOA trap. Look at the bottom block. Estimated Taxes, Insurance & Assessments is $1,219 a month, but Estimated Escrow above it is $1,119. The missing $100 is HOA dues — disclosed, correctly, as not in escrow.

So the payment you send the lender is $4,349. Your actual monthly housing cost is $4,449, and nobody will ever bill you for the difference in the same envelope. When you are testing whether a payment fits, use the lower box and the "in escrow?" column together.

Costs at Closing

Two numbers that get confused constantly.

Estimated Closing Costs ($14,388) is what the transaction costs — fees, prepaid items, escrow funding.

Estimated Cash to Close ($61,888) is what you must actually bring. It is closing costs plus your down payment, minus the earnest money already sitting with the title company and minus any seller credits.

The second number is the one that should match your bank balance. The first is the one you compare between lenders.

Page 2: Loan Costs

Page 2 is where lenders actually differ, and it is organised by a principle worth internalising: the sections are sorted by how much control you have.

Section A — Origination Charges. This is the lender's price. Points, origination, underwriting, processing, application fees. Every dollar here goes to the lender, and it is the only section that is straightforwardly theirs to set. When somebody says a lender is expensive, section A plus the interest rate is what they should mean.

Note the points line. "0.5% of Loan Amount (Points)" is $2,363 paid up front to buy the rate down. A lender showing a lower rate with a fat points line is not cheaper — it has sold you a permanent buydown and put the cost here. Comparing rates without comparing section A is the single most common way to pick the wrong loan.

Section B — Services You Cannot Shop For. Appraisal, credit report, flood certification. The lender picks the vendor; you pay. These are broadly similar everywhere and rarely decide anything.

Section C — Services You Can Shop For. Title, survey, closing fee. The lender must hand you a written list of suggested providers, and you are free to use somebody else entirely. Most people never do. It is genuinely optional money, and in Texas title premiums are set by the state — so what varies is the escrow and closing fees around them, not the policy itself.

D is the total that actually belongs to the loan. When you compare two lenders, compare D, not the number at the bottom of the page.

Page 2: Other Costs

Almost nothing in this section is a cost of borrowing, and reading it as though it were will make a cheap lender look expensive.

E — Taxes and Other Government Fees. Recording. The county sets it. Identical everywhere.

F — Prepaids. Your first year of homeowner's insurance, and interest from closing day to the end of that month. Close on the 25th and you prepay five days; close on the 2nd and you prepay twenty-nine. This number is an artefact of your closing date, not a measure of the lender — and comparing two estimates with different assumed closing dates on this line tells you nothing.

G — Initial Escrow Payment at Closing. The lender collects a few months of tax and insurance up front so the account can pay bills before you have funded it. This is the item people resent most and it is the one that is least a cost at all: it is your money, held in your account, to pay your bills. You would owe every dollar of it with no mortgage at all. The only difference is timing.

H — Other. Owner's title policy, home warranty, anything not required by the lender. In Texas the seller customarily pays for the owner's policy, which is why it reads $0 here — but "customarily" is a contract term, not a law, so check yours.

J — Total Closing Costs. The big number. Useful for your bank balance. Close to useless for comparing lenders, because it is dominated by prepaids and escrow, which barely vary and are not really costs.

Calculating Cash to Close

Straight arithmetic, with one line people miss: Deposit. Earnest money already with the title company is subtracted here. It is not extra money you owe — you paid it weeks ago, and this is where it comes back to you.

Watch Seller Credits too. If you negotiated the seller paying costs, it belongs on this line, and a Loan Estimate that has forgotten about it will overstate your cash to close by exactly that amount.

Page 3: Comparisons

Page 3 is the most ignored page of the three, and it contains the two numbers designed specifically for shopping.

APR is not your interest rate. Your rate is 6.625%. Your APR is 7.084%. The APR folds the cost of borrowing — points, origination, prepaid interest and mortgage insurance — back into a single rate, so that a loan with a low rate and heavy fees stops looking cheap.

But APR has a well-known blind spot, and on this loan you are looking straight at it. Most of that 0.46% gap is mortgage insurance, which exists because the down payment is 10%. Set this Loan Estimate beside one for the same house with 20% down and the APRs will differ substantially — and almost none of that difference will be about the lender. APR compares two quotes on the same structure well. Across different structures it misleads.

TIP — Total Interest Percentage — 130.51% means that over thirty full years you would pay $1.31 in interest for every dollar borrowed. It is an honest and slightly shocking number, and it comes with a large caveat: it assumes you keep this loan for thirty years, and hardly anyone does. Treat it as an argument for paying attention to the rate, not as a prediction.

In 5 Years is the most practical line on the page. $199,376 paid, $29,557 of it principal. It is the closest thing the form offers to "what will this actually have cost me by the time I am likely to move?"

Page 3: Other Considerations

Boilerplate, mostly — but two lines are worth a glance.

Appraisal: you are entitled to a copy of any appraisal, even if the loan does not close. People pay for appraisals and never ask for them.

Servicing: whether the lender intends to keep your loan or transfer it. A transfer is routine and changes nothing about your terms, but it does mean the company you send money to in year three may not be the one you are talking to now. Worth knowing in advance rather than discovering by letter.

What is allowed to change before closing

This is the part almost nobody knows, and it is the reason the form has legal teeth rather than being a brochure. Every estimate on it falls into one of three buckets.

Read the first row again. Section A cannot go up. Not by a little, not with an apology. If the origination charges on your Closing Disclosure exceed those on your Loan Estimate, the lender must refund the difference — the rule is a general prohibition on the charge paid exceeding the charge disclosed, with only the narrow exceptions above.

There is one real escape hatch, called a changed circumstance — the appraisal comes in low, your income turns out to be structured differently than stated, you switch products. That permits a revised Loan Estimate. What it does not permit is a fee quietly growing between the estimate and the table.

Which gives you a concrete thing to do at closing that most buyers never do: put the Closing Disclosure next to the Loan Estimate and compare section A line by line. It takes two minutes. That comparison is the entire reason both documents use identical layouts.

How to compare two lenders properly

Get both on the same day. Rates move daily. Estimates from different weeks are not comparable and no amount of care with the arithmetic fixes that.

Compare four things, together: the interest rate, section A, lender credits, and the APR. Any one of them alone can be made to look good in isolation, and every one of them can be moved to flatter a quote.

Ignore F and G. Prepaid interest and escrow funding are the same money at every lender, shifted by your closing date. They inflate the total and tell you nothing.

Check the rate-lock line on both. An unlocked quote at a better rate is not a better rate. It is a hope.

Then tell each lender what the other said. This is normal and expected. A lender who will not sharpen a pencil against a real competing Loan Estimate has told you something useful for free.

If you want a second set of eyes, send me both — with account numbers blacked out, and note that page 1 carries your name and property address. I will tell you plainly which is better, including when it is not mine. That is more useful to you than winning an argument, and per the referral rules I am not permitted to be paid for pointing you anywhere regardless.

Run your own version of this file in the payment calculator or the cash-to-close calculator — they use the same arithmetic as the figures on this page.

Every figure on this page is a worked illustration of a $525,000 purchase with 10% down at 6.625% over 30 years, with a 2.1% tax rate and $2,400 annual insurance. It is not a quote, not a Loan Estimate, and not an offer of credit — your rate and costs depend on your credit, your down payment, the property and the lender. Fee amounts are representative of the North Dallas market and vary. Tolerance rules are summarised; changed circumstances and several narrower exceptions apply.

Sources: Regulation Z, 12 CFR § 1026.37 — content of the Loan Estimate · 12 CFR § 1026.19(e) — timing and good-faith tolerances · CFPB — Guide to the Loan Estimate and Closing Disclosure forms