Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ====== Loan Estimate ====== The Loan Estimate is a standardized three-page form you receive after applying for a [[mortgage]] in the United States. Think of it as a clear, easy-to-read price tag for one of the biggest financial commitments you'll ever make. Mandated by the federal government's [[TILA-RESPA Integrated Disclosure (TRID)]] rule since 2015, it replaced the older, more confusing "Good Faith Estimate." Its primary purpose is to empower you, the borrower, by laying out all the important details of a loan offer in a consistent format. A [[lender]] must send you this document within three business days of receiving your application. This isn't a loan approval, but rather a detailed summary of the proposed loan's terms, from the [[interest rate]] and monthly payment to the full spectrum of [[closing costs]]. Its standardized nature is its superpower, allowing you to confidently compare offers from multiple lenders side-by-side to find the best possible deal. ===== Breaking Down the Loan Estimate ===== The form is intentionally designed to be simple, but knowing where to look for key information is crucial. It’s structured to walk you from the most important top-line numbers to the finer details. ==== Page 1: The Big Picture ==== This first page is your executive summary. It provides the most critical information at a glance, so you can quickly assess the offer. * **Loan Terms:** At the very top, you’ll see the loan amount, interest rate, and monthly principal and interest payment. Crucially, it asks, "Can this amount increase after closing?" This tells you if you have a fixed-rate loan or an adjustable-rate mortgage (ARM). * **Projected Payments:** This section provides a more realistic estimate of your total monthly housing payment. It includes not only principal and interest but also estimated costs for homeowners' insurance, property taxes, and any mortgage insurance, often held in an [[escrow]] account. * **Costs at Closing:** This gives you two bottom-line figures: //Estimated Closing Costs// (the total cost of getting the loan) and //Estimated Cash to Close// (the actual amount of money you need to bring to the closing table, after accounting for your down payment and any credits). ==== Page 2: The Nitty-Gritty Costs ==== This page provides a detailed, itemized breakdown of the closing costs summarized on page one. These costs are split into two main categories: * **Loan Costs:** These are fees paid directly to the lender or for services required by the lender. They include things like the [[origination fee]] (the lender's profit), application fees, and any [[points]] you might pay to lower your interest rate. Some of these fees are fixed, while others you can shop around for (like pest inspection or survey fees). * **Other Costs:** This section includes taxes, certain government fees, and prepaid expenses like your first year of homeowners' insurance premiums. These costs are generally set by third parties and will be very similar from lender to lender. ==== Page 3: The Fine Print ==== The final page contains important details for comparison and long-term planning. * **Comparisons:** This section shows you how much you will have paid in principal, interest, mortgage insurance, and loan costs after five years. It also features the [[Annual Percentage Rate (APR)]], which is a vital metric. The APR represents the total cost of borrowing, including interest and most fees, expressed as a yearly rate. It is often a better tool for comparing loan offers than the interest rate alone. * **Other Considerations:** Here you'll find information on late fees, whether a third party could assume your loan in the future, and other key policies. ===== Why the Loan Estimate Matters to an Investor ===== For a value investor, understanding the Loan Estimate is non-negotiable, whether you're buying a home to live in or an investment property. The principles of due diligence and finding value apply just as much to debt as they do to equity. ==== Finding True Value ==== A savvy investor knows that the headline price isn't the whole story. The Loan Estimate forces you to look beyond the advertised interest rate and see the //true cost// of financing. By focusing on the APR and the total "Costs at Closing," you can identify which loan truly offers the most value over its lifetime, preventing you from overpaying for financing. ==== The Power of Comparison ==== The standardized format is a gift for comparison shopping. Applying with three or more lenders and laying their Loan Estimates side-by-side is the ultimate form of due diligence. This simple act of comparison can reveal significant differences in fees and rates, potentially saving you tens of thousands of dollars over the life of the loan. ==== Avoiding Costly Surprises ==== The Loan Estimate provides a firm baseline for your borrowing costs. For many of the fees listed (especially lender fees), there are strict legal limits on how much they can increase by the time you receive your final [[Closing Disclosure]]. This regulatory protection helps you budget with confidence and protects you from bait-and-switch tactics, ensuring the deal you were offered is the deal you get.