Loan Estimate: what it is and when you must get it

What counts as an application

Regulation Z (12 CFR 1026.2(a)(3)(ii)) says an application for these loans is the submission of six items: your name, your income, your Social Security number to obtain a credit report, the property address, an estimate of the property’s value, and the mortgage loan amount you seek. Once a lender has all six, the three-business-day clock starts.

What the form shows

According to the CFPB, the Loan Estimate shows:

• Loan terms, purpose, product and type, plus the loan amount.
• Monthly principal and interest, and the estimated total monthly payment including any escrow and mortgage insurance.
• Estimated closing costs and estimated cash needed at closing.
• Rate lock status, whether the rate is fixed or adjustable, and any prepayment penalty or balloon payment.
• Origination charges, third-party services, lender credits, points and loan officer information.
• Comparison figures such as the APR and Total Interest Percentage (TIP).

For each block of costs, see closing costs explained.

Fees before you have the form

Regulation Z (12 CFR 1026.19(e)(2)(i)(A)) bars a creditor or any other person from imposing a fee in connection with your application until you have received the Loan Estimate and indicated an intent to proceed. The exception is a bona fide, reasonable fee for obtaining a credit report. The CFPB adds that after you tell the lender you intend to proceed, you typically pay an application or appraisal fee.

Shop and compare

The CFPB advises: “Request multiple Loan Estimates from different lenders so you can compare and choose the loan that’s right for you.” It suggests getting estimates from at least three lenders. Compare the origination charges as a total, not line by line. For services you can shop for, the lender should give you a list of providers, and you can look elsewhere after checking with the lender. Use the mortgage calculator to test a monthly payment and see mortgage rates explained and discount points.

What to check when you receive it

The CFPB lists these checks:

• Your name and contact information; ask for corrections.
• That the loan amount, term and product match what you discussed.
• Any gap, such as in cash to close or the loan amount.
• Homeowner’s insurance premiums and property taxes, verified with the provider and the taxing authority.
• Lender credits or points, and whether a similar loan without them is available.
• The loan officer, who you can look up in the NMLS database.

You also have a right to receive a copy of the appraisal.

How long is it good, and when does it change

Lenders generally must honor a Loan Estimate for 10 business days, according to the CFPB. If you wait longer to say you want to proceed, the lender may revise the rate and costs. Silence is not consent: “The lender cannot assume that silence means you intend to proceed.” If you do not want to proceed, you need not do anything.

A revised Loan Estimate means “something important has changed about the loan and its costs” (CFPB). Common reasons: the home appraised for less than the price, the lender could not document irregular income, you changed loan type or down payment, or you requested a rate lock after the first estimate. Under 12 CFR 1026.19(e)(4), the revision is due within three business days of the lender receiving information that establishes the reason, and it must reach you no later than four business days before closing. See mortgage rate lock.

Which costs can rise

Under 12 CFR 1026.19(e)(3), fees the lender controls and transfer taxes cannot increase without a change in circumstances; recording fees and some required services may rise up to 10 percent as a group; prepaid interest, property insurance premiums, escrow deposits and services you shopped for have no limit. The CFPB also says it is illegal for lenders to intentionally underestimate charges. If costs exceed the limits without a change in circumstances, you are entitled to a refund of the excess. The Closing Disclosure guide shows how to compare the final form.

Where states differ

The Loan Estimate is a federal form, and its timing is the same in every state. The costs inside it are not: transfer taxes, recording fees and title charges depend on your state and county. Compare closing costs by state and the transfer tax by state, or run your numbers with the closing costs calculator.