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Understanding Your Loan Estimate

The Loan Estimate is a standardized three-page disclosure required by the TRID rule that provides borrowers with estimated loan terms, projected payments, and itemized closing costs within three business days of application. TRID tolerance rules limit how much certain fees can increase between the LE and the final Closing Disclosure, giving the document legal enforceability as a consumer protection tool.

Key Takeaways

  • The Loan Estimate must be delivered within three business days of the lender receiving a completed application (defined as six specific pieces of information under TRID).
  • Zero-tolerance fees (origination charges, transfer taxes) cannot increase between the LE and CD under any circumstances. If they do, the lender must cure the violation by refunding the excess.
  • Ten-percent cumulative tolerance fees (Section B services the lender selects) can increase individually, but the total increase across all such fees cannot exceed 10% of the original LE total.
  • The APR on page 3 incorporates certain fees into an annualized rate and is the most effective single metric for comparing total loan cost across lenders.
  • Revised Loan Estimates can only be issued for valid changed circumstances and must be delivered within three business days of the lender learning of the change.
  • The Loan Estimate is not a commitment to lend and does not lock the interest rate unless the LE specifically indicates a rate lock.
  • Borrowers should compare the rate-points tradeoff across lender estimates to determine the option with the lowest total cost based on their expected time in the property.
  • Page 2 Section C services can be shopped by the borrower, which introduces competitive pricing and removes tolerance limits for those fees.

How It Works

How the TRID Disclosure Timeline Works

The TRID timeline begins when the lender receives the sixth and final piece of application information: borrower name, income, Social Security number, property address, estimated property value, and desired loan amount. Within three business days of receiving all six elements, the lender must deliver the Loan Estimate. The LE can be delivered in person, by mail, or electronically (if the borrower has consented to electronic delivery under the E-SIGN Act). If mailed, the LE is presumed received three business days after mailing.

After receiving the LE, the borrower indicates intent to proceed. This trigger allows the lender to begin charging fees beyond the credit report fee and to order appraisals, title searches, and other services. The lender cannot require the borrower to indicate intent to proceed within any specific timeframe, and the borrower is free to take as long as needed to compare offers from other lenders before committing.

If a valid changed circumstance occurs after the initial LE, the lender has three business days from the date it becomes aware of the change to issue a revised LE. The revised LE must be received by the borrower no later than seven business days before consummation (closing). If the timing does not permit this, the lender may need to reflect the changes on the Closing Disclosure instead, but tolerance protections still apply based on the most recent valid LE .

How Tolerance Calculations Work

Tolerance calculations compare the fees on the final Closing Disclosure against the fees on the most recent valid Loan Estimate (original or revised). For zero-tolerance fees, the comparison is line by line: each individual zero-tolerance fee on the CD must be less than or equal to the corresponding fee on the LE. For 10% cumulative tolerance fees, the comparison is aggregate: all 10% tolerance fees on the CD are summed, all 10% tolerance fees on the LE are summed, and the CD total cannot exceed the LE total by more than 10%.

If a tolerance violation is identified at closing, the lender must cure it by providing a refund or credit to the borrower. The cure must be applied within 60 calendar days of consummation. If the lender discovers the violation after closing (through internal QC review or regulatory examination), the cure must still be provided within the 60-day window. Borrowers who identify potential tolerance violations should raise them with their loan officer or closing agent immediately.

Tolerance calculations are based on the amounts disclosed on the LE and CD, not on what was verbally discussed or informally quoted. This is why the written LE is the controlling document for consumer protection purposes, and why borrowers should review every line item carefully.

How the Rate Lock Works with the Loan Estimate

The Loan Estimate includes a field indicating whether the interest rate is locked and, if so, the lock expiration date. If the rate is not locked at the time the LE is issued, the LE must be reissued when the rate is locked to reflect the locked rate and any associated changes to fees (such as discount points or lender credits that are rate-dependent).

Rate locking is a separate agreement between the borrower and lender. Locking the rate freezes the interest rate and, typically, the lender credits or discount points associated with that rate for a specified period (commonly 30, 45, or 60 days). If the lock expires before closing, the borrower may need to pay an extension fee or accept the current market rate. Rate lock policies vary by lender, and borrowers should confirm the lock terms in writing before proceeding.

Float-down provisions, which allow the borrower to take advantage of rate decreases after locking, are offered by some lenders under specific conditions. These provisions typically require a minimum rate decrease (such as 0.25%) and may involve a fee. Float-down availability and terms should be confirmed at the time of lock.

Related topics include mortgage underwriting explained, closing disclosure explained, mortgage closing process, mortgage timeline: how long does it take?, and to choose the right mortgage lender.

Key Factors

Factors relevant to Understanding Your Loan Estimate
Factor Description Typical Range
Tolerance Category
Rate Lock Status
Changed Circumstances
Comparison Metrics (APR, TIP)

Examples

Scenario: Comparing Two Loan Estimates from Different Lenders
Outcome: The monthly payment difference is approximately $58 in favor of Lender A. The upfront cost difference is $1,600 in favor of Lender B. The breakeven period is approximately 28 months ($1,600 divided by $58 per month). Since the borrower plans to stay at least seven years, Lender A's lower rate with higher upfront costs is the more economical choice. Comparing the APRs confirms this: Lender A's APR of 6.38% is lower than Lender B's APR of 6.55%, reflecting the lower total cost over the loan's expected duration .

Scenario: Tolerance Violation Discovered at Closing
Outcome: The lender has exceeded the 10% cumulative tolerance by $130 ($250 actual increase minus $120 permitted increase). The lender must cure this violation by issuing a refund or credit of at least $130 to the borrower. If the violation is not identified at closing, the lender has 60 calendar days from consummation to provide the cure. The borrower should raise this discrepancy with the closing agent or loan officer before signing.

Scenario: Revised Loan Estimate Due to Changed Circumstance
Outcome: The lender issues a revised Loan Estimate reflecting the two-unit property type. The origination charges increase by $500 due to higher LLPAs, and the appraisal fee increases by $200 because multi-unit appraisals cost more. The revised LE resets the tolerance baseline, so these increases are measured against the revised LE, not the original. The borrower should confirm that the property type change is a valid changed circumstance under TRID and that the fee increases are directly attributable to the change.

Common Mistakes to Avoid

  • Not comparing Loan Estimates from multiple lenders
  • Focusing only on the interest rate and ignoring total closing costs and APR
  • Ignoring the tolerance protections and not comparing the LE to the Closing Disclosure
  • Assuming a revised Loan Estimate is always justified
  • Confusing the Loan Estimate with a loan commitment or rate lock
  • Not requesting a Loan Estimate from each lender being considered

Documents You May Need

  • Loan Estimates from all lenders under consideration (for comparison)
  • Borrower's six application data points (name, income, SSN, property address, estimated value, loan amount) to trigger LE delivery
  • Any revised Loan Estimates received during processing
  • Rate lock confirmation or agreement (separate from the LE)
  • Closing Disclosure (for final comparison against the LE at closing)
  • Written list of settlement service providers from the lender (for Section C shopping)

Frequently Asked Questions

When will I receive the Loan Estimate?
The lender must deliver the Loan Estimate within three business days of receiving your completed application. Under TRID, a completed application requires only six pieces of information: your name, income, Social Security number, the property address, estimated property value, and desired loan amount. You do not need to provide pay stubs, tax returns, or bank statements to trigger the LE.
Can the lender charge me fees before I receive the Loan Estimate?
The lender cannot charge most fees before you indicate intent to proceed after receiving the LE. The only exception is a reasonable fee for pulling the credit report. Application fees, appraisal fees, and other charges cannot be collected until you have reviewed the LE and affirmatively indicated you wish to proceed.
What are zero-tolerance fees?
Zero-tolerance fees are charges that cannot increase between the Loan Estimate and the Closing Disclosure under any circumstances. They include origination charges (lender fees and points), fees for services required by the lender where the lender selects the provider and the borrower does not shop, and transfer taxes. If these fees increase, the lender must cure the violation by refunding the excess amount.
How do I know if a revised Loan Estimate is valid?
A revised LE must be based on a valid changed circumstance, such as a change in property type, new information that was not available at application, a borrower-requested change, or a natural disaster. The lender should be able to identify the specific changed circumstance and explain how it affects the revised fees. If the lender cannot provide this justification, the original LE tolerances may still apply.
What is the difference between the interest rate and the APR?
The interest rate is the cost of borrowing expressed as a percentage of the loan amount, used to calculate the monthly principal and interest payment. The APR incorporates certain additional costs — origination charges, discount points, mortgage insurance premiums, and certain other fees — into an annualized rate that reflects the total cost of credit. The APR is almost always higher than the note rate because it includes these additional costs.
Should I choose the lender with the lowest interest rate or the lowest closing costs?
The answer depends on how long you plan to keep the loan. A lower rate with higher upfront costs (points) saves money over time through lower monthly payments, but the upfront investment takes time to recoup. Calculate the breakeven period by dividing the additional upfront cost by the monthly payment savings. If you plan to keep the loan longer than the breakeven period, the lower rate is more economical. If you may sell or refinance sooner, lower closing costs may be preferable.
Can I negotiate the fees on the Loan Estimate?
Origination charges (Section A) are set by the lender and may be negotiable, particularly in competitive markets. Third-party fees (Sections B and C) are set by the service providers. Borrowers can reduce Section C costs by shopping for their own title, survey, and inspection providers. Government charges (recording fees, transfer taxes) are not negotiable. Lender credits, which offset closing costs in exchange for a slightly higher rate, are another tool for reducing out-of-pocket costs at closing.
What happens if I do not receive the Loan Estimate within three business days?
If the lender fails to deliver the LE within the required three-business-day window, it is a TRID violation. Borrowers can file a complaint with the Consumer Financial Protection Bureau (CFPB). In practice, most lenders have automated systems that ensure timely delivery, but delays can occur if the lender disputes whether a completed application was received. Borrowers should document when they provided the six required application elements.
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