Duane Buziak, NMLS #1110647, walks you through the three-page Loan Estimate so you can tell what a loan will really cost and whether its structure fits your plans. Knowing how to read a loan estimate form turns it from a stack of numbers into a decision tool. You need a Loan Estimate in hand (you should receive one within three business days of applying, per the Consumer Financial Protection Bureau) and a rough sense of how long you expect to keep the home. That second piece matters more than most people realize, and Step 6 shows why.
Step 1: Confirm the Basics on Page 1 Before Anything Else
Start at the top. Check the loan amount, term, loan type (Conventional, FHA, VA, or USDA) and purpose against what you actually requested. A 30-year term where you asked for 15, or an FHA loan where you expected Conventional, is the most common early error, and it is far easier to fix now than after you have built a budget around it. If your amount exceeds the 2026 conforming limit of $806,500 (or $1,209,750 in high-cost areas, per FHFA), expect jumbo structure and pricing.
Next, find the Loan ID and the date the estimate was issued. Revised estimates replace earlier ones, so confirm you are reviewing the current version before comparing anything.
Then read the rate lock line. It tells you whether the rate is locked, when the lock expires, and until what date the estimate itself stays valid. As of 2026, the estimate generally must remain available for at least 10 business days after it is delivered, though you should confirm the current rule on the CFPB’s Loan Estimate explainer. If your closing date sits beyond the lock expiration, ask what an extension would cost.
Mistake to avoid: treating this form as an approval. It is an estimate, not a commitment. Approval depends on underwriting, appraisal, and verified income and assets. Signing the intent to proceed tells your broker to continue; it does not lock you into closing.
Step 2: Decode the Loan Terms Box and Product Features
The Loan Terms box sits just below the basics. It lists your loan amount, interest rate, and monthly principal and interest, and beside each is a question: Can this amount increase after closing? On a fixed-rate loan, the rate and payment rows should read “No.” The loan amount row reads “No” unless the loan is structured to add to the balance, which is uncommon.
An adjustable-rate mortgage (ARM) looks different. The rate row shows “Yes,” with a note describing the first change date, how often it adjusts, and the cap on how high it can go. If you see a “Yes” in the payment row on what you thought was a fixed loan, stop and ask why.
Two lines below those rows change loan fit more than anything else on the page:
- Prepayment penalty: if “Yes,” the form shows the maximum penalty and the period it applies. If you may sell or refinance within a few years, this directly affects your plan.
- Balloon payment: if “Yes,” a large lump sum comes due at the end of a short term. This is rarely a fit for a primary residence unless you have a firm exit plan.
For any “Yes” answer, ask three things: what triggers the change, what is the worst-case payment, and is there an alternative structure without the feature? Duane Buziak recommends asking for an explanation of every “Yes” before you move forward, because an unexplained feature is the one most likely to surprise you later.
Step 3: Break Down the Projected Payments Section
Page 1 continues with Projected Payments, which separates your monthly cost into pieces. The first is principal and interest. The second is mortgage insurance, if it applies. The third is estimated escrow, which covers property taxes, homeowners insurance, and sometimes HOA dues. The bottom line, Estimated Total Monthly Payment, is the number to budget against, not the P&I figure.
Suppose P&I is $2,650, mortgage insurance is $150, and escrow is $700. Your real monthly payment is $3,500, which is $850 more than the headline P&I. Borrowers who qualify their budget on P&I alone often feel that gap in month one.
Check the taxes and insurance line against real quotes. Compare the escrow estimate to your actual homeowners insurance quote and the property’s tax bill, and ask whether the tax figure reflects reassessment after purchase. If the estimate is low, your payment will rise after the first escrow analysis.
Look at when mortgage insurance ends, because the two main types end differently (rules as of 2026; verify at the sources):
- Conventional PMI: you can request removal once you reach 80% of the original value, and it terminates automatically at 78% on schedule. See the CFPB’s PMI guide.
- FHA MIP: a 1.75% upfront premium plus an annual premium. Depending on your down payment and term, the annual premium may last 11 years or the life of the loan. Confirm current terms in HUD Handbook 4000.1.
That difference is a major reason a borrower with 5% down may compare FHA and Conventional on total cost, not just monthly payment.
Step 4: Read the Costs at Closing and Cash to Close
Still on page 1, the Costs at Closing box shows two numbers that people routinely confuse. Estimated Closing Costs are the fees and prepaid items for the transaction. Estimated Cash to Close is what you actually bring, and it also includes your down payment, minus credits and deposits already paid. A buyer putting $60,000 down with $12,000 in closing costs may see cash to close near $72,000, not $12,000.
The breakdown lives in the Calculating Cash to Close table on page 2. Walk through its lines in order:
- Total closing costs, carried from Section J.
- Closing costs financed, if any are rolled into the loan.
- Down payment or funds from borrower.
- Deposit you have already paid, such as earnest money, shown as a negative number.
- Seller credits, also negative.
- Adjustments and other credits, which is where down payment assistance usually appears.
Credits show as negative numbers because they reduce what you bring. Broker credits and seller concessions are how no-out-of-pocket closing options are built: for example, a $4,000 seller concession against $4,000 of eligible costs shows as -$4,000 and offsets them. Credits are limited by program rules, and a higher-rate structure may be what funds them, so always ask how a credit is being paid for.
Finally, ask whether the cash-to-close figure fits your savings plan after you set aside reserves. A number you can technically reach but that drains your emergency fund is a structural problem, not just a budgeting one.
Step 5: Walk Through Page 2 Closing Cost Details (Sections A, J)
Page 2 itemizes everything in lettered sections. You do not need to audit every line, but you should understand what each section represents.
Sections A, B, and C: Loan Costs
Section A, Origination Charges, holds the broker’s compensation and any discount points. Discount points are prepaid interest: each point costs 1% of the loan amount and buys a lower rate. They differ from fees, which pay for work. Points are optional and tradeable; fees are not.
Section B covers services you cannot shop for, such as the appraisal and credit report, where the broker selects the provider. Section C covers services you can shop for, typically title and settlement services. You may choose your own title provider, and doing so is allowed; if you do, the figures in Section C will change when you do.
Sections E through H: Taxes, Prepaids, and Escrow
Section E lists government recording fees and transfer taxes. Section F lists prepaids: homeowners insurance premiums and prepaid interest from closing to month end. Section G is the initial escrow deposit, which funds your tax and insurance account. Sections F and G are not fees in the way Section A is. They are your own money for costs you would owe anyway, now collected up front.
Section J: Total Closing Costs
Section J adds it up and shows the credits line, which reduces your total. To run a break-even calculation, find the points figure in Section A (labeled as a percentage and dollar amount), then compare it to the monthly payment difference on page 1. That is the data you need for Step 6.
Step 6: Use Page 3 to Judge Total Cost and Loan Fit
Page 3 holds the Comparisons box, which is the most strategic part of the form. It shows:
- In 5 Years: total you will have paid (principal, interest, mortgage insurance, and loan costs) and the principal you will have paid down.
- APR: the annual percentage rate, which folds certain costs into a yearly rate.
- Total Interest Percentage (TIP): total interest over the full term as a percentage of the loan amount.
APR is useful for comparing loan structures with different points and fees, but it assumes you hold the loan to full term, so it is not a prediction of your actual cost. It also is not your interest rate, and the lowest rate is not automatically the cheapest loan.
The better test is break-even. Consider an illustration, not a client result: a $500,000 loan where $7,500 in points (1.5%) lowers the payment by $100 a month.
- $7,500 ÷ $100 = 75 months, or 6 years 3 months, to recover the cost.
- Stay 4 years (48 months): savings of $4,800 minus $7,500 paid leaves you $2,700 behind.
- Stay 10 years (120 months): savings of $12,000 minus $7,500 leaves you $4,500 ahead.
The same loan is a poor choice for one borrower and a good one for another. Your expected time in the home decides it, which is why the opening question about how long you will stay matters. (This ignores the opportunity cost of the $7,500, which a sophisticated buyer should also weigh against other uses of that cash.)
Duane Buziak, NMLS #1110647, often starts clients with a NoTouch Credit Pull so they can test scenarios like this one without a hard inquiry hitting their credit.
Step 7: Compare Two Loan Estimates Side by Side and Decide
A fair comparison needs matching inputs: the same loan amount, term, and lock period. Estimates from Rocket Mortgage, Movement Mortgage, or any other provider only tell you something if these match. Then line up these items:
- Section A total and the points figure
- Section J total closing costs
- Estimated cash to close
- Estimated total monthly payment
- The 5-year paid and principal-reduced figures
Also compare the program itself. The right structure depends on your situation, not a rate sheet:
- Conventional: best for strong credit and 5% or more down. Advantage: PMI can be removed. Trade-off: stricter credit and down payment standards.
- FHA: best for lower credit scores or smaller down payments. Advantage: flexible qualification. Trade-off: upfront and annual MIP that may last longer.
- VA: best for eligible veterans and service members. Advantage: no monthly mortgage insurance and low or no down payment. Trade-off: a funding fee may apply, so check the VA home loan page.
- DSCR: best for investors qualifying on property income. Advantage: no personal income documentation. Trade-off: typically a larger down payment and different pricing.
- Non-QM: best for self-employed borrowers or non-standard income. Advantage: alternative documentation such as bank statements. Trade-off: pricing and terms differ from agency loans.
A NoTouch Credit Pull pre-qualification gives you an initial estimate with no credit impact, and if you already hold a competing estimate, ask about rate matching.
Red flags to question before signing the intent to proceed: fees you cannot get explained, lock dates that do not line up with your closing, blank or missing figures, and Section B costs that look unusually high. A good broker answers each one plainly.
Questions Borrowers Ask About Their Loan Estimate
1. What is a Loan Estimate?
It is a standardized three-page form that summarizes your loan terms, projected payments, and closing costs. Your broker must deliver it within three business days of your application.
2. Is the Loan Estimate binding?
No. It is an estimate, and some figures can change with underwriting or appraisal results. Certain fees have limits on how much they can increase.
3. Does requesting one hurt my credit?
A full application requires a credit pull, but a NoTouch Credit Pull pre-qualification does not impact your credit.
4. What is the difference between closing costs and cash to close?
Closing costs are fees and prepaids. Cash to close adds your down payment and subtracts credits and deposits already paid.
5. What are discount points?
They are prepaid interest, each equal to 1% of the loan amount, paid to lower your rate. They only pay off if you keep the loan past the break-even point.
6. Is APR my real rate?
No. APR folds certain costs into a yearly percentage and assumes you keep the loan for its full term.
7. Can I shop for my own title company?
Yes, for services listed in Section C. Services in Section B are chosen by your broker.
8. What is escrow?
It is an account that collects part of your taxes and insurance each month and pays them when due.
9. Will I get a new Loan Estimate if something changes?
Yes. A revised estimate is issued when certain changes occur, and it replaces the earlier one.
10. How do I use the Loan Estimate later?
Compare it line by line against your Closing Disclosure, which you should receive at least three business days before closing.
Keep Your Loan Estimate for the Closing Disclosure
Hold on to your Loan Estimate after you choose a loan. When the Closing Disclosure arrives, compare the two line by line, and question any change in fees, cash to close, or loan terms before you sign.
Stop overpaying on your mortgage: discover wholesale rates that could save you thousands over the life of your loan. Talk to Duane today for a no-obligation rate comparison with no credit impact, and bring your own estimate to Mortgage Shopping (Supra Mortgages / Duane Buziak Mortgage Maestro) for a walk-through of exactly what it says. The right mortgage is the one that fits your plans, not just the one with the lowest number on a rate sheet.