Loan Estimate

Loan Estimate — quick definition

A Loan Estimate (LE) is a standardized, three-page document that mortgage lenders must give you within three business days after receiving your loan application. It summarizes the estimated key terms, costs, and fees of the mortgage you’re considering so you can understand potential financial obligations before committing.

What a Loan Estimate includes

• Loan amount, interest rate, and estimated monthly payment
• Estimated closing costs (loan costs, lender and third-party fees, taxes, and other expenses)
• Information about any required escrow account for property taxes and homeowners insurance
• Notes on whether the interest rate is locked or could change and how that would affect payments
• Disclosures about loan features such as prepayment penalties or negative amortization

Why the Loan Estimate matters

The LE is a critical transparency tool: because every lender uses the same standardized three-page form, you can easily compare offers from multiple lenders side-by-side. It helps you see the true cost of different loan options before you sign anything. However, a Loan Estimate does not guarantee approval or lock in rates and terms unless the document or lender specifically says the rate is locked.

How the Loan Estimate works in practice

1. Timing: Lenders must provide the LE within three business days after they receive your mortgage application.
2. Revisions: If a material change occurs (for example, a changed loan amount after a low appraisal), the lender must issue a revised Loan Estimate—also within three business days of that change.
3. Rate locks: If the original LE states the rate isn’t locked, your rate and payment could change before closing. If you choose to lock a rate (for example, a 3.5% rate), the lender must honor it under the stated conditions and applicable tolerances.
4. Origin of the form: The uniform LE form was created by the TILA‑RESPA Integrated Disclosure (TRID) rule in 2015 to combine earlier disclosures into one easy-to-understand document.

Real-world examples

1. Homebuyer shopping around: A buyer requests LEs from several lenders for a $250,000 mortgage, compares interest rates, monthly payments, and closing costs, then picks the most affordable overall offer.
2. Interest rate lock scenario: A lender’s LE says rates are not locked; the buyer chooses to lock a 3.5% rate to protect against rising rates. Once locked, the lender must honor that rate within the allowed tolerances.
3. Revised LE after appraisal: An appraisal comes in lower than expected, reducing the loan amount. The lender issues a revised LE showing the updated loan amount and costs.
4. Escrow explanation: The LE shows the lender requires an escrow account to collect taxes and insurance monthly, so the buyer can budget the total monthly housing cost.
5. Loan features disclosed: The LE notes a prepayment penalty clause, alerting the borrower to potential fees for early payoff—important for long-term cost planning.

How to use a Loan Estimate when shopping

• Request LEs from multiple lenders for the same property and loan type to get comparable data.
• Compare interest rates, monthly payments, total closing costs, and whether escrow is required.
• Check for special loan features (prepayment penalties, adjustable rates, negative amortization).
• If something changes after you receive the LE (appraisal, loan amount, or requested loan product), expect a revised LE.
• Ask questions about any line item you don’t understand—lenders are required to explain the document.

Common questions

Is a Loan Estimate the same as a final loan offer? No. It’s an estimate of costs and terms. Final terms are provided later in the Closing Disclosure and at loan closing.

Can fees change after I get the LE? Yes. Some fees can change based on actual third‑party charges or a valid change of circumstance, in which case you’ll receive a revised LE.

How soon must I get an LE? Within three business days after the lender receives your mortgage application.

Bottom line

The Loan Estimate is your early, standardized snapshot of a mortgage’s expected costs and terms. Use it to compare lenders, spot important loan features, and avoid surprises before you commit to a mortgage. If anything significant changes, expect a revised Loan Estimate so you can make an informed decision.