What is a Good Faith Estimate? Loan Estimates explained

Before you commit to a mortgage, it’s important to know exactly what it’s going to cost and what expenses you’ll need to cover. A Loan Estimate, also known as a Good Faith Estimate, is the document from a lender that breaks down all the important estimated key costs of your mortgage. It covers the total loan amount, total loan costs, your expected monthly payment, interest rate, and closing costs.

While the figures listed on a Loan Estimate may not exactly match the final terms of your mortgage, this document can help you fully understand the terms of your loan and help you compare offers from different lenders. Here’s a closer look at how Loan Estimates work, exactly what they contain, and how to use one to get a mortgage.

A Loan Estimate - formerly known as a "Good Faith Estimate" - is a standardized three-page form that mortgage lenders must provide within 3 business days of receiving your application. It details the estimated interest rate, monthly payment, and total closing costs, allowing you to compare multiple offers safely without getting surprised by unexpected fees later in the process.

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.

Every lender is required to use the same standardized Loan Estimate form. That way, it makes it easier for borrowers to understand the terms of the mortgage and compare loan offers from different sources.

When do you get your estimate?

When you apply for a mortgage, your lender must provide you with an estimate of the costs associated with your mortgage within 3 days of receiving your application. It’s important to note that this does not mean that you have been approved for a mortgage. This document is designed 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 or there are changes to your financial situation.

There isn’t a set 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.

Rules of a Loan Estimate in real estate

Under federal consumer protection guidelines, strict rules govern how and when a lender provides a Good Faith Estimate (GFE), or modern Loan Estimate, ensuring transparency from the very start.

Who must give it?

Any licensed mortgage lender or broker orchestrating a residential home loan is legally required to provide this document to prospective borrowers. This rule applies uniformly across traditional financial institutions, online mortgage companies, and credit unions, to establish a fair playing field for consumers.

When it must be delivered

Federal regulations state that a lender must deliver or mail the three-page Loan Estimate within 3 business days of receiving your mortgage application. Your application is officially considered complete once the lender receives your name, income, Social Security number, the property address, an estimate of the property value, and the desired loan amount.

What it must include

A legally compliant estimate cannot simply offer a vague ballpark figure. An official Loan Estimate must detail estimated core costs and terms, including the:

• Loan amount
• Loan type
• Interest rate
• Projected monthly principal
• Total interest
• Property taxes
• Mortgage insurance, if applicable
• Closing costs

What items appear on a Loan Estimate

Your Loan Estimate provides important details about your loan.

The first page covers specifics about the property and the loan term, interest rate, and payments. The second page mostly covers fees, taxes, and services – some of which you can 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 5 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. Getting a few quotes from different vendors 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 factors in both your interest rate and other costs associated with the loan. The APR figure gives you an easy way to compare the overall cost of different loans, as well as the total cost and principal balance after 5 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: 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
• Refinance¹
• 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. That way, you can choose the loan option that has the best terms available to you.

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. Your APR will affect how much your mortgage costs each monthly and overall.

Good Faith Estimate in real estate example

Let’s explore a practical real-world scenario of how a borrower reviews their Loan Estimate form.

Imagine you’re looking to purchase a single-family home with a final purchase price of $300,000, and you plan to put down a standard 10% down payment, meaning you need to secure a loan amount of $270,000.

Upon receiving the document from your lender within the required 3-day window, you flip to page 1 and verify the loan terms. The form shows an interest rate of 6.5% with a rate lock active for 45 days. Under the projected monthly payments section, the document maps out a principal and interest breakdown of approximately $1,706, along with placeholders for monthly home insurance and property taxes.

Moving to page 2, you get to see the closing costs of your loan itemized. You can also see which ones you can shop around for and which fees are set. Section A shows an origination charge of $1,200, while Section B outlines a non-negotiable appraisal fee of $450 and a credit check fee of $30. You spot that Section C includes title services totaling $1,500, which you note you can shop around for to potentially find a cheaper settlement provider.

The bottom of page 2 breaks down the calculations, showing total closing costs of $6,000. Combined with your required $30,000 down payment, the final "Cash to Close" line lets you know you will need exactly $36,000 available on closing day to safely secure your new home.

Finally, page 3 tells you how your APR compares of other loan offers you may have gotten. It also tells you how much principal and interest you’ll have paid after 5 years.

FAQ

Let’s take a look at the answers to some frequently asked questions about Loan Estimates.

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 doesn’t 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 binding?

No, you’re not committed to your lender under after you close on the loan. Your loan terms may also change, so be sure to compare the figures listed on your Loan Estimate with those detailed on your Closing Disclosure.

Can you get a Loan Estimate from multiple lenders?

Yes. It’s wise to shop around and get estimates from several different lenders so you can compare offers to make sure you’re getting the best terms you can.

Is getting a Loan Estimate required?

Yes, Loan Estimates are required by federal law. Lenders must provide you with an estimate within 3 business days of receiving your application.

Are the Loan Estimate and 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 protect borrowers

Loan Estimates are key 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 Approval² with a Rocket Mortgage Home Loan Expert to help make your offer to buy a home as appealing to sellers as possible.

¹Refinancing may increase finance charges over the life of the loan.

²Participation 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.

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