How to Read a Loan Estimate for New Construction (What Matters Most)
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The Loan Estimate (LE) is a standardized 3-page document your lender must provide within 3 business days of your loan application. For new construction buyers, it's the most important document in the transaction — and the one builders hope you'll gloss over.
Quick Answer
Focus on three numbers: (1) the interest rate and whether it's locked, (2) the APR (which includes fees and makes apples-to-apples comparison possible), and (3) "Cash to Close" on page 3. Don't compare loans based on rate alone — a lower rate with higher fees may cost more total. Always get at least two LEs — from the builder's lender and an outside lender — before deciding.
Page 1: The Key Numbers
Loan amount: Confirm this matches your expected mortgage.
Interest rate: Is it locked? If not, it could change before close. Ask about lock period and lock fee.
Monthly P&I payment: Confirm this is just principal and interest. Taxes, HOA, and insurance are separate.
Prepayment penalty: Should be "No" for standard mortgages. If it's "Yes," that's a red flag.
Balloon payment: Should also be "No."
Page 2: Fees — Where the Real Comparison Happens
Page 2 breaks fees into sections:
- Section A — Origination charges (the lender's profit on your loan)
- Section B — Services you can't shop (title/escrow — set by the transaction)
- Section C — Services you can shop (insurance, survey if applicable)
What to compare: Section A between lenders. This is where you see points (discount points) paid to buy down the rate, origination fees, and application fees. A builder's lender may show 2 points on page 2 to get you a lower rate — which is why comparing only rate misleads you.
APR: The Annual Percentage Rate includes fees amortized over the loan term. It's the apples-to-apples number. A 6.75% rate with 2 points is often a higher APR than a 7.0% rate with 0 points at shorter loan horizons.
Page 3: Cash to Close
This is your bottom line at the closing table:
- Down payment
- Closing costs (from page 2)
- Prepaid items (first-year insurance, prepaid interest, initial escrow reserves)
- Minus: credits (builder incentives go here)
Check: does the builder incentive appear correctly? If the builder promised $20,000 in credits and you only see $15,000 on page 3, ask why.
Comparing Builder Lender vs. Outside Lender
Request LEs from both on the same day. Compare:
- Monthly P&I payment (after all incentives)
- Total closing costs (Section A)
- Cash to close (page 3)
- APR
If the builder's lender offers better terms only because of the incentive credit — not because their rate or fees are better — that's fine. Take it. If an outside lender offers better terms even without the incentive, that's worth considering (you'd lose the builder-tied incentive).
→ See also: Builder Incentives Explained
Frequently Asked Questions
Q: Do I have to use the builder's lender?
A: No. Builders can incentivize you to use their lender, but they can't require it. You always have the right to choose your own lender.
Q: When do I get a Loan Estimate?
A: Within 3 business days of completing a loan application. You can (and should) apply at multiple lenders to get multiple LEs.
Q: What's the difference between APR and interest rate?
A: Interest rate is what you pay on the loan balance. APR includes fees (points, origination, etc.) spread over the loan term — making it a better comparison tool across lenders.
Q: Can incentives appear on the Loan Estimate?
A: Yes — builder credits typically appear as "seller credits" reducing your cash to close. Confirm they're listed before you finalize lender selection.
Q: What if the Loan Estimate changes before close?
A: Most fees can't change more than 10% from LE to Closing Disclosure (CD). Certain fees are locked exactly. If you see changes, ask your lender to explain each one.
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