Rate Direct

The Loan Estimate (LE) and Closing Disclosure (CD) are the two most important documents in your mortgage process. Federal law requires lenders to provide these standardized forms so you can understand your loan terms and compare offers. Yet most borrowers skim through them or ignore them entirely. Learning to read these documents carefully protects you from overpaying and ensures you know exactly what you are signing.

The Loan Estimate: Your First Look at the Deal

You receive the Loan Estimate within three business days of submitting a mortgage application. It is a three-page form that summarizes your loan terms, projected payments, and estimated closing costs. Page 1 shows the loan amount, interest rate, monthly principal and interest, prepayment penalty status, and balloon payment status. It also shows your estimated total monthly payment including taxes, insurance, and mortgage insurance. The projected payments section shows how your payment may change over time (relevant for ARMs). Review this page carefully — the interest rate and loan amount should match what you discussed with your loan officer.

Understanding Closing Costs on the LE

Page 2 of the Loan Estimate breaks down closing costs into three categories. Section A: Origination Charges are fees charged by the lender — origination fee, discount points, and any application or underwriting fees. Section B: Services You Cannot Shop For are third-party fees the lender selects, like the appraisal and credit report. Section C: Services You Can Shop For are third-party fees where you choose the provider, like title insurance and survey. Sections D-H cover taxes, government fees, prepaids, and escrow deposits. Compare Section A across multiple Loan Estimates — this is where lenders make their profit and where the biggest price differences appear.

Tolerance Rules: What Can Change

Not all charges on the Loan Estimate are final. Federal law groups them into three tolerance categories. Zero tolerance (cannot increase at all): lender origination fee, discount points, and transfer taxes. Lenders must absorb any increases in these fees. 10% aggregate tolerance: the total of all fees in the services-you-can-shop-for and services-you-cannot-shop-for categories can increase by no more than 10% combined. Unlimited tolerance: prepaid interest, property insurance, initial escrow deposits, and recording fees can change without limit. If your lender tries to increase zero-tolerance fees at closing, they must provide a revised Loan Estimate and you can insist on the original pricing.

The Closing Disclosure: Final Numbers

You receive the Closing Disclosure at least three business days before closing. It mirrors the Loan Estimate format but contains final, actual numbers instead of estimates. Compare the CD line-by-line against your most recent LE. Focus on: Did the interest rate change? Did the origination charges increase (they should not)? Are the third-party fees within the 10% tolerance? Are there any new fees that were not on the LE? The three-day waiting period exists specifically so you have time to review and raise questions. Use it. If anything looks wrong or different from what you expected, contact your loan officer immediately.

Red Flags to Watch For

An interest rate that is higher than what was quoted or locked. Origination charges that increased from the LE (violation of zero tolerance). New fees that were not on the original LE. A prepayment penalty that you did not agree to. An ARM when you were quoted a fixed rate. Significant increases in third-party fees beyond the 10% tolerance. A higher loan amount than expected (which can happen if fees were rolled in without your knowledge). A cash-to-close amount that is substantially higher than the LE estimate. If any of these appear on your CD, do not close until the issue is resolved — once you sign, you have accepted the terms.

How to Compare Multiple Loan Estimates

When shopping multiple lenders, comparing Loan Estimates is the most apples-to-apples method available. Focus on: the interest rate plus origination charges on page 2, Section A — this is the lender's total take. A lender quoting 6.5% with $2,000 in origination fees may be cheaper than one quoting 6.375% with $5,000 in fees. Check the Total Interest Percentage and Total of Payments on page 3 for a long-term comparison. Before you even apply, Rate Direct shows you what rates are available from hundreds of lenders so you have a benchmark. If a lender's LE shows a rate significantly higher than what Rate Direct shows, push back or move on.