Loan Estimate

Key Takeaways

• A lender must deliver or mail the Loan Estimate no later than the third business day after receiving a consumer's mortgage application.
• Under the federal integrated disclosure rule an application means six items: the borrower's name, income, Social Security number, the property address, an estimate of the property value, and the loan amount sought.
• The Loan Estimate must also be delivered or mailed no later than the seventh business day before consummation, which puts a floor under how fast a mortgage can close.
• The Loan Estimate replaced two older forms, the Good Faith Estimate and the early Truth in Lending disclosure.

What It Means

The Loan Estimate is the standardized federal form a mortgage lender must give an applicant near the start of the loan process. Three pages long, it sets out the loan amount, the interest rate, the projected monthly payment, the annual percentage rate, an itemized estimate of closing costs, and the cash the borrower will need at the table. It also flags risk features in plain language, such as an adjustable rate, a balloon payment, or a prepayment penalty.

Two older documents sit behind it. Congress directed the Consumer Financial Protection Bureau to combine the early Truth in Lending disclosure with the Good Faith Estimate, and the Loan Estimate is the result. Its partner form, the Closing Disclosure, combined the final Truth in Lending disclosure with the HUD-1 settlement statement. Together the pair is known as the Tila Respa Integrated Disclosure Trid.

Comparison is the whole point of the design. Because every lender uses the same layout and the same categories, a borrower can set two Loan Estimates side by side and see which loan costs less.

How It Works in Washington

The three-business-day deadline is federal, at 12 CFR 1026.19(e)(1)(iii), and it works the same way in every state. What changes from state to state is the licensing law layered on top of it.

In Washington, mortgage brokers and loan originators answer to the Mortgage Broker Practices Act. RCW 19.146.030 requires a full written disclosure itemizing and explaining all fees and costs within three business days following receipt of a loan application, which is the same clock the federal rule runs. The statute then closes the loop. RCW 19.146.030(2) provides that disclosure made in compliance with the Truth in Lending Act and Regulation Z satisfies the state fee-disclosure requirement, and that a good faith estimate given under RESPA and Regulation X satisfies the settlement-cost half. A Washington borrower therefore normally receives one federal form rather than a state form plus a federal one.

Enforcement still runs through state law. RCW 19.146.0201(11) makes it a prohibited practice to fail to comply with state and federal laws applicable to the activities the chapter governs, so a missed federal deadline is also a licensing problem for a Washington mortgage broker. For a real estate broker the practical rule is simpler: if a client has not seen a Loan Estimate by the fourth business day after applying, call the lender before the closing date slips.

Example

Priya applies for financing on a $525,000 house in Spokane on Monday, June 1. She gives the lender her name, income, Social Security number, the property address, an estimated value, and the $472,500 loan amount she wants, so the application is complete that day. Counting Tuesday, Wednesday, and Thursday as the three business days that follow, the lender must deliver or mail her Loan Estimate no later than Thursday, June 4.

It arrives Wednesday. It shows a $472,500 loan at 6.5 percent fixed for 30 years, principal and interest of $2,986 a month, estimated closing costs of $9,450, and estimated cash to close of $61,950 (her $52,500 down payment plus those costs). Priya asks a second lender for a quote and receives a Loan Estimate at the same rate but with $11,200 in closing costs. Same loan, $1,750 more to borrow it, and she can see the gap because both forms use the same lines in the same order.

Common Mistakes and Exam Traps

• The Loan Estimate comes near the beginning of the loan and the Closing Disclosure near the end. Exam questions routinely reverse the two.
• The Loan Estimate's three-business-day clock runs forward from the application, while the Closing Disclosure's three-business-day clock runs backward from consummation.
• For the deadline counted after application, a business day is a day the creditor's offices are open. For the seventh-business-day-before-consummation rule, business days include Saturdays.
• A Loan Estimate is an estimate of terms and costs. It is neither a loan approval nor a commitment to lend.