Understanding loan estimates, or 'good faith estimates'

Before you commit to a mortgage, you should know exactly what expenses you’re signing up for, and that’s the purpose of a loan estimate. This detailed and straightforward document breaks down the essentials of your loan in one place. It covers the property, the loan amount, total loan cost, your expected monthly payment, closing costs, and other fees involved.

We’ll go over how you can use a loan estimate to see the true cost of homeownership and get a complete understanding of your mortgage.

What is a loan estimate?

A loan estimate, also known as a good faith estimate prior to a 2015 update to the Truth in Lending Act, is a document that outlines some of the key details of your mortgage, such as your loan’s estimated interest rate, monthly payment, closing costs, and total cost.

This is a standardized form used by every lender, making it easier for borrowers to compare mortgage offers from different sources.

When do you get your estimate?

When you apply for a mortgage, your lender must provide you with a good faith estimate of the costs associated with your mortgage application. It’s important to note that this does not mean that you have been approved for a mortgage. It simply serves to give you a sense of how much you’ll pay if you continue through the mortgage process with that lender.

If you apply for loans from multiple lenders, you can compare the different loan estimates to find the best deal.

How long is the estimate valid?

Remember, you’re not guaranteed to qualify for those precise terms if you carry on with the lending process, and the estimate also won’t be valid forever. The details of your loan can change if you wait too long.

There isn’t a standardized period of time during which the estimate remains valid. If you move forward with applying for a loan, the lender will collect additional information about you and your finances and may provide you with an adjusted estimate. For example, costs could rise if your credit score dips or if insurance winds up being more expensive than expected.

What items appear on a loan estimate

Your loan estimate will be a three-page document that provides important details about your loan.

The first page covers specifics about the property and the loan term, rate, and payments. The second page mostly covers fees, taxes, and services that you can and cannot shop around for. The third and final page provides the lender’s details and information you can use to compare the loan to other options, such as the loan’s APR and cost over the first five years.

We’ll walk through what’s included in your loan estimate in more detail. You can use our glossary of mortgage terms to better understand the document.

Loan estimate page 1

The first page of your loan estimate has information about you, the property you’re buying, and basic details of the loan. The key things to look at are the loan amount, projected payments, and cash to close, as those give you the most important financial information you can use to compare with other loan options.

• Date issued
• Applicant(s) name(s)
• Property address
• Sale price
• Loan term
• Loan purpose
• Loan type
• Rate lock (yes or no)
• Loan terms

• Loan amount
• Interest rate
• Monthly principal and interest
• Prepayment penalty (yes or no)
• Balloon payment (yes or no)

• Projected payments

• Principal and interest
• Mortgage insurance
• Estimated escrow
• Estimated total monthly payment
• Estimated taxes, insurance, and assessments

• Costs at closing

• Estimated closing costs
• Estimated cash to close

Loan estimate page 2

The second page of your loan estimate provides a more granular look at the fees and taxes you’ll pay for your loan. It also lists which services you cannot shop around for and which you can shop around for. Shopping around for services like surveys or inspections may help you save some money.

A.  Origination charges

• Mortgage points
• Application fee
• Underwriting fee

B.  Services you cannot shop for

• Appraisal fee
• Credit report fee
• Flood determination fee
• Flood monitoring fee
• Tax monitoring fee
• Tax status research fee

C.  Services you can shop for

• Pest inspection fee
• Survey fee
• Title – Insurance binder
• Title – Lender’s title policy
• Title – Settlement agent fee
• Title – Title search

D.  Total loan costs (A + B + C)

• Other costs

E.  Taxes and other government fees

• Recording fees and other taxes
• Transfer taxes

F.  Prepaids

• Homeowners insurance premium (6 months)
• Mortgage insurance premium
• Prepaid interest
• Property taxes

G.  Initial escrow payment at closing

• Homeowners insurance
• Mortgage insurance
• Property taxes

H.  Other

• Title – owner’s title policy (optional)

I.  Total other costs (E + F + G + H)

J.  Total closing costs

• D + I
• Lender credits
• Calculating cash to close
• Total closing costs (J)
• Closing costs financed (paid from your loan amount)
• Down payment/funds from borrower
• Deposit
• Funds for the borrower
• Seller credits
• Adjustments and other credits
• Estimated cash to close

Loan estimate page 3

The final page of the loan estimate includes your lender’s information and some details you can use to compare different loans. Look closely at the APR of the loan, which gives you an easy way to compare the cost of different loans, as well as the total cost and principal balance after five years.

• Lender name and contact information
• Loan officer name and contact information
• Mortgage broker name and contact information
• Comparisons
• In 5 years:

• Total paid in principal, interest, mortgage insurance, and loan costs
• Principal you will have paid off

• Annual percentage rate (APR): This is your cost over the loan term expressed as a rate. This is not your interest rate.
• Total interest percentage (TIP): This is the total interest you’ll pay over the loan term, expressed as a percentage of your loan amount.
• Other considerations

• Appraisal
• Assumption
• Homeowners insurance
• Late payment
• Refinance
• Servicing
• Confirm receipt

• Applicant(s) signature(s)

How to use your loan estimate to compare lenders

A loan estimate is one of the best tools to have for comparing multiple loan options, giving you key facts and figures all in one place.

The most important things to look at are:

• Loan amount: The less you borrow, the less the loan will cost overall, but the more you’ll likely have to pay upfront as a down payment.
• Loan term: A longer loan term means lower monthly payments, but a higher overall cost than a mortgage with a shorter term.
• Monthly payment: This is the amount you’ll pay each month, making it a key indicator of month-to-month affordability.
• APR: This describes the cost of a loan, accounting for both interest and fees. The lower the APR of a loan, the less expensive it is.

FAQ

Loan estimates are incredibly useful documents that contain a lot of information. Make sure you understand how they work and how to use them to compare your loan options.

Are loan estimates always accurate?

No, loan estimates are not always perfectly accurate, but lenders are required by law to make them as accurate as possible. Your actual loan may differ from the loan estimate if your credit score changes, loan rates rise or fall, or for other reasons.

Can I dispute a good faith estimate?

If you believe there is an error in your good faith estimate, you can contact your lender to ask them to review and update it. This is especially true if your final loan vastly differs from the estimate. The Consumer Financial Protection Bureau offers sample letters you can use to dispute an error or request information.

Does getting a loan estimate mean I’m approved?

No, getting a loan estimate does not necessarily mean you’re approved for a mortgage. Your lender will conduct a thorough underwriting process to determine whether you qualify for a loan.

Is a loan estimate required?

Yes, loan estimates are required by federal law. Lenders must provide you with an estimate within three business days of receiving your application.

Are a loan estimate and a closing disclosure the same?

No, loan estimates and closing disclosures are different documents. The loan estimate is provided shortly after you submit your application and is helpful for comparing multiple loan options. A closing disclosure is provided shortly before you complete the borrowing process and includes finalized details about loan fees, interest rates, and more.

The bottom line: Loan estimates are there to protect borrowers

Loan estimates are detailed documents that lenders must provide to prospective borrowers after receiving an application. They contain information about how much you can expect to pay for a mortgage, making it easier to compare offers from multiple lenders. If you’re in the market to get a loan, be sure to compare multiple lenders using the estimates they provide.

You can start your application and get a Verified Approval¹  with Rocket Mortgage to help make your offer to buy a home as appealing to sellers as possible.

¹Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.