How to Audit Your Loan Estimate (LE)
A Loan Estimate is a 3-page document you receive within 3 business days of applying for a mortgage. It outlines your estimated interest rate, monthly payment, and closing costs. However, lenders often use placeholders for taxes and insurance, which can make a loan look cheaper than it actually is. This tool helps you catch those discrepancies.
1. Check the Interest Rate and Product
Look at Page 1 under "Loan Terms". Ensure the interest rate matches what you were quoted. Also check if the rate is locked (indicated by a "Yes" or "No" checkmark). If it's not locked, it can change before closing.
2. Audit the "Estimated Taxes, Insurance & Assessments"
This is where the biggest surprises hide. Look at Page 1, bottom section.
- Property Taxes: If you are buying a newly constructed home, lenders sometimes estimate taxes based on the *unimproved land value*. In year 2, your taxes will skyrocket. If you are buying an existing home, the lender might use the current owner's tax bill, which will be reassessed after you buy. Always verify the county's reassessment rules.
- Homeowner's Insurance: Lenders often plug in a low national average (e.g., $80/mo). If you live in a coastal state, wildfire zone, or area with high premiums, this could be off by hundreds of dollars.
3. Review "Estimated Cash to Close" (Page 2)
Your monthly payment is only half the battle. Page 2 breaks down your closing costs. Pay close attention to Box A (Origination Charges). These are the fees the lender charges you for doing the loan. This is the most negotiable part of the LE. Compare Box A across multiple lenders.
4. Look at "Prepaids" and "Initial Escrow Payment at Closing" (Box F and G)
Lenders collect several months of property taxes and insurance upfront to fund your escrow account. If one lender's Cash to Close looks drastically lower than another's, check Box G. They might simply be collecting fewer months of escrow upfront—which doesn't save you money, it just shifts the timing of when you pay.