The Loan Estimate and Closing Disclosure, Explained

The Loan Estimate and the Closing Disclosure are two standard federal forms that bookend your mortgage. The Loan Estimate arrives within three business days after you apply and shows the terms and costs a lender expects to offer. The Closing Disclosure arrives at least three business days before closing and shows the final terms and costs. Comparing the two is the simplest way to catch surprises before you sign.

Why these forms exist

These disclosures, sometimes called Know Before You Owe forms, replaced older paperwork with a consistent format. Every lender must use the same Loan Estimate form and the same Closing Disclosure form for most mortgages. That consistency means you can compare offers from different lenders side by side and then check that the deal you chose is the deal you get.

A few loan types use different disclosures. Reverse mortgages, home equity lines of credit, manufactured home loans not secured by real estate and certain subordinate loans from homebuyer assistance programs do not use these forms. Borrowers in those situations receive Truth in Lending disclosures instead, and reverse mortgage borrowers also receive other settlement paperwork.

The Loan Estimate: when you get it

Once a lender has six key pieces of information, which together count as an application, it must send you a Loan Estimate within three business days. Those pieces are your name, income, Social Security number, the property address, an estimate of the property's value and the loan amount you want.

A Loan Estimate does not mean your loan is approved or denied. It shows what the lender expects to offer if you move forward. You can request Loan Estimates from several lenders and compare them before choosing one.

Reading the Loan Estimate, page by page

Page one: loan terms, payments and cash to close

• Loan terms: the loan amount, interest rate and principal and interest payment, plus yes-or-no answers on whether each can increase after closing, and whether there is a prepayment penalty or a balloon payment.
• Projected payments: how your payment is built from principal, interest, mortgage insurance and escrow for taxes and insurance, and how it may change over the life of the loan.
• Costs at closing: estimated closing costs and the estimated cash to close.
• Rate lock: whether your rate is locked and, if so, until when. If it is not locked, the rate and some costs can change.

Check that your name, the loan type, the product and the loan amount match what you discussed. Prepayment penalties and balloon payments are features to understand fully before you agree to them.

Page two: closing cost details

• Origination charges: the lender's own fees for processing, underwriting and originating the loan, plus any points you pay to lower the rate.
• Services you cannot shop for: third-party services the lender requires and selects, such as the appraisal and credit report.
• Services you can shop for: required services where you may choose your own provider, such as title services or a survey. The lender gives you a list of providers as a starting point.
• Other costs: taxes and government recording fees, prepaid items such as homeowners insurance and interest, and the initial deposit into your escrow account.
• Lender credits: money the lender applies toward closing costs, usually in exchange for a higher rate.
• Calculating cash to close: how your down payment, closing costs, deposits and credits combine into the cash you bring.

Page three: comparisons and other considerations

• Loan officer and lender: names and NMLS ID numbers you can verify on NMLS Consumer Access.
• Comparisons: this section shows what you will have paid in principal, interest, mortgage insurance and loan costs over an early period of the loan, along with the annual percentage rate, or APR, and the total interest percentage, or TIP. The APR expresses the cost of credit, including certain fees, as a yearly rate, so it differs from the interest rate. The TIP shows total interest over the life of the loan relative to the loan amount. Both are tools for comparing offers, not figures to look at in isolation.
• Other considerations: appraisal rights, whether the loan can be assumed by a future buyer, homeowners insurance requirements, late payment terms, refinancing considerations and whether the lender intends to service the loan.

How to compare Loan Estimates

• Request estimates for the same loan type, amount and property, ideally on the same day.
• Compare total origination charges, not individual fee names.
• Check whether each estimate includes points or lender credits, and ask for a version without them.
• Compare the total of services you cannot shop for.
• Look at the comparisons section together with page one, not just one number.
• Ask the lender to explain anything that differs from what you expected.

Can the Loan Estimate change?

Yes, within limits. Federal rules set tolerances for how much certain costs can increase between the Loan Estimate and closing. Some charges, such as the lender's own origination fees, generally cannot increase. Others can rise within a limit, and some can change freely, such as prepaid interest or charges for services you shopped for yourself.

A lender can issue a revised Loan Estimate when there is a valid reason, such as a change you requested, information that turns out to be different, a rate lock or a change in the property's appraised value. If you receive a revised estimate, ask what changed and why.

The Closing Disclosure: when you get it

Your lender must give you the Closing Disclosure at least three business days before closing. That window exists so you have time to review the final numbers, ask questions and resolve problems before you are sitting at the closing table.

The Closing Disclosure is a five-page form. Its first pages mirror the Loan Estimate, which makes side-by-side comparison straightforward. It also shows who pays and who receives money at closing, final escrow details and contact information for everyone involved in the transaction.

Certain changes after you receive it trigger a new three-business-day waiting period, including certain increases in the loan's overall cost of credit, a change in the loan product or the addition of a prepayment penalty.

How to compare the Closing Disclosure with the Loan Estimate

• Confirm the loan amount, loan type, product and rate match what you agreed to.
• Check whether the payment can change and whether any new features appeared, such as a prepayment penalty.
• Compare closing costs category by category and ask about any increases.
• Review cash to close and confirm how you will deliver those funds.
• Check that your name and the property address are correct.
• Look for any credits you expected, such as seller credits or lender credits.

If something does not match, contact your lender right away. Asking for the full set of closing documents early, along with the Closing Disclosure, gives you more time to review them.

Watch for wire fraud

Closing is a common target for scammers who send fake wiring instructions by email. Before you send money, call your closing agent at a phone number you know is legitimate and confirm the instructions verbally. Never rely on a phone number or link in an unexpected email.

Keep both forms

Store your Loan Estimate and Closing Disclosure with your other home records. They are useful later if you refinance, sell or need to confirm what you paid at closing. For tax questions about closing costs, talk to a tax professional.

Frequently asked questions

Next steps

• Mortgage Lenders
• Mortgage Companies

Sources

• What is a Loan Estimate? (CFPB)
• What is a Closing Disclosure? (CFPB)
• Loan Estimate explainer (CFPB)
• What documents should I receive before closing on a mortgage loan? (CFPB)