How to Read Your Loan Estimate and Closing Disclosure

The Loan Estimate is the three-page form a lender must send within three business days of your mortgage application. The Closing Disclosure is the five-page form with the final terms, which you must receive at least three business days before closing. Comparing the two, line by line, is how you catch fee increases and surprises before you sign.

Both forms come from the federal TILA-RESPA Integrated Disclosure rule, often called TRID, in Regulation Z. They apply to most closed-end loans secured by a home or a co-op unit; reverse mortgages are excluded. Here is what each section means, which numbers are allowed to change, and how to compare offers.

When the clock starts

Under Regulation Z, you have “applied” once the lender has six pieces of information: your name, your income, your Social Security number (to pull credit), the property address, an estimate of the property’s value, and the loan amount you want. From then the lender has three business days to deliver or mail the Loan Estimate.

“Business day” has two meanings in these rules. For the three days the lender has to send the Loan Estimate, it means a day the lender’s offices are open for substantially all of its business. For the waiting periods before closing (including the Closing Disclosure’s three days and the four-day cutoff for a revised Loan Estimate), it means every calendar day except Sundays and federal legal public holidays, so Saturdays count. Before you get the Loan Estimate and tell the lender you want to proceed, the only fee anyone may charge you is a reasonable fee for pulling your credit report.

1. Day 0

   You submit the six application items

   Name, income, SSN, property address, estimated value, loan amount.

2. By business day 3

   Loan Estimate is delivered or mailed

   If you don’t proceed within 10 business days, the lender may re-quote fees.

3. After LE

   You signal intent to proceed

   Only now can the lender charge an application or appraisal fee.

4. 7 business days after LE

   Earliest possible closing

   The loan cannot close until at least seven business days after the first Loan Estimate is delivered or mailed.

5. As needed

   Revised Loan Estimates

   Only for a valid reason, such as locking the rate or a changed circumstance, and within 3 business days of learning it.

6. 4 business days before closing

   Last day to receive a revised LE

   After this, changes go on the Closing Disclosure instead.

7. 3 business days before closing

   You must have the Closing Disclosure

   If mailed, you are treated as receiving it 3 business days after mailing.

8. Closing

   Sign the loan

   Compare the final CD to your LE one last time.

The Loan Estimate, page by page

Page 1: the loan in one view

Check your name, the loan term, purpose, product (fixed or adjustable) and loan type. For a purchase, the loan amount plus your down payment should equal the price. Look at the “Can this amount increase after closing?” column: a YES next to the interest rate means an adjustable rate. Note whether there is a prepayment penalty or balloon payment. Page 1 also shows whether your rate is locked and until when, and when the estimated closing costs expire.

Page 2: closing cost details

Section D totals A through C, Section I totals E through H, and Section J is your total closing costs. Below that, “Calculating Cash to Close” shows how much money to bring.

Page 3: comparisons

The Comparisons box shows how much you will have paid “In 5 Years” and how much principal you will have paid off, plus the APR and Total Interest Percentage (TIP). These are the best numbers for comparing two offers with different rates and fees. Page 3 also lists the loan officer’s NMLS ID, which you can look up.

What can change: the tolerance rules

A Loan Estimate is a good-faith estimate, and the rules sort each fee into one of three buckets.

• Zero tolerance. Fees paid to the lender, mortgage broker or their affiliates, transfer taxes, and fees for services you weren’t allowed to shop for cannot exceed the Loan Estimate.
• 10% cumulative tolerance. Recording fees and shoppable services where you used a provider from the lender’s list can rise, but the total of that group can’t exceed the estimate by more than 10%.
• No fixed limit. Prepaid interest, homeowner’s insurance premiums, escrow deposits, property taxes, services the lender doesn’t require, and shoppable services where you chose a provider not on the lender’s list. These must be based on the best information the lender had at the time.

If a fee rises above its tolerance without a valid reason, the lender must refund the difference. Valid reasons for a revised Loan Estimate include a changed circumstance (for example, a low appraisal), a change you asked for, locking a rate that wasn’t locked before, and proceeding more than 10 business days after the LE was provided.

How to compare two Loan Estimates

1. 1

   Request them on the same day for the same loan

   Same loan amount, term, product and lock period. Rates move daily, so estimates from different days don’t compare cleanly.
2. 2

   Compare total origination charges (Section A)

   The CFPB’s advice is to compare the total, not individual fee names. One lender’s “processing fee” is another’s “underwriting fee.”
3. 3

   Separate points from fees

   A lower rate with points costs more upfront. Check how long until the savings repay the points with the mortgage points calculator.
4. 4

   Compare Section B, then shop Section C

   You can’t shop Section B services, so compare them between lenders. Section C services such as title can be shopped separately.
5. 5

   Use the Comparisons box

   “In 5 Years,” APR and TIP fold rate and fees together. Or plug both offers into the mortgage offer comparison calculator.

The Closing Disclosure: what to check

The Closing Disclosure uses the same section letters as the Loan Estimate, so you can line them up. Page 1 repeats the loan terms and payment. Page 2 itemizes closing costs, including who pays each one. Page 3 shows the “Calculating Cash to Close” table comparing the Loan Estimate to the final figures, plus the summary of the transaction with any seller credits. Page 4 covers loan features such as escrow, late fees and assumption. Page 5 shows the total of payments, finance charge, APR and TIP.

When the 3-day clock restarts

Most corrections can be made at or before closing without a new waiting period. But you must get a corrected Closing Disclosure and a new three-business-day wait if:

• the APR becomes inaccurate beyond the allowed tolerance,
• the loan product changes (for example, fixed to adjustable), or
• a prepayment penalty is added.

You can waive the waiting period only for a genuine personal financial emergency, in your own written statement. Pre-printed waiver forms are prohibited.

Red flags

• A lender asks for an application or appraisal fee before you have a Loan Estimate.
• A document labeled “estimate” that isn’t on the official form. Ask for the actual Loan Estimate.
• Zero-tolerance fees go up on the Closing Disclosure with no revised LE or explanation.
• The product, rate type or a prepayment penalty appears that you didn’t agree to.
• Last-minute changes to wiring instructions by email. Call your attorney or settlement agent on a known number. See real estate wire fraud.