How to read a loan estimate

by | Apr 28, 2022

Today I’m going to be going over what a loan estimate looks like and more importantly how to read it to know if your lender or broker is trying to sneak in those pesky hidden fees which is code for screwing you over.

Loan estimates

If you’re here you are probably wondering how to read a loan estimate or what exactly a loan estimate is. You are in the right place. I’m going to go over 4, count them not 1, not 2, but 4 different loan estimates for you. Two different refinance loan estimates and two different purchase loan estimates.  After you watch this video you are going to be an expert and being able to read a loan estimate from start to finish and see where things can change, where they can’t and maybe even be able to advise your friends and family on if they’re getting a decent deal (or you could just send them a link to this video – that works too. But before we jump into the actual loan estimates a quick word about Fake loan estimates.

Fake loan estimates

Fake loan estimates – is there such a thing? Yes! A loan estimate as you’ll see once we get into the actual documentation is a standardized three-page document that is consistent all across the country – here’s a quick look at the first page, the second and the third…if you got something, ANYTHING that looks different than those three pages – it’s a fake loan estiamte. A lot of lenders and brokers (and I mean A LOT) do not actually send out the loan estimate when they are talking to you.  Some lenders will send you a one-page term sheet on their letterhead or a “quickquote” – anything other than actual loan estimate.

The funny thing is that the lender is legally required to give you that three page document at some point in the mortgage process so why in the world are they sending you these phoney bologna loan estimates at all? And the answer is that it’s always one of two reasons:

Laziness

Number one – They are lazy. Creating loan estimates takes a few minutes and a lot of loan officers are not tech-savvy or even that knowledgeable about loans to begin with. I’ve even hired loan officers who have been loan officers for over 10 years who had no idea how to write a loan estimate – can you believe that?!  They’re essentially salesmen and have no idea how to operate the software that actually gets you an accurate estimate. Companies like loan depot, rocket mortgage, and tons of others have given their salesman this shortcut where they can spit out a pdf with two clicks of a mouse giving you a quick quote.  The problem is these are not accurate! 

They often don’t have all the fees included and they never break everything down line by line. So when you’re looking at it things can change pretty drastically from the BS excuse of a loan estimate they are sending to the actual loan estimate.

Being Sneaky

Reason #2 that they won’t send a loan estimate is that they are TRYING to hide things from you. Now there are some sneaky snake oil types in this industry but I believe that most people are trying to earn an honest living so I’m not going to come out and say that most lenders are sneaky like this but there are definitely a handful of them who I’ve come across where these one-page crappy excuses for a loan estimate are used to intentionally confuse the client.


Bottom line – insist on getting a full, 3-page loan estimate with the entire cost breakdown. It’s the only way you’ll be able to read it accurately and compare it with other loan estimates and they’re going to create it for you down the line anyway so just push them to get it now so that you don’t get tricked. If they can’t do that then honestly in my opinion they’re not sophisticated enough to deserve your business and you can find someone more seasoned to work with.

With that out of the way let’s jump inside my computer and take a look at these different loan estimates so that you know how to read them, what to look for, and how to compare one against another. 

Congratulations, you are now an expert in loan estimatology.  You are now able to read a loan estimate with confidence and be able to tell if you’re getting a winner or a loser of a deal. Now we definitely glossed over quite a few topics on the loan process like discount points, lender credits, and even FHA vs conventional loans. 

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