If you’re applying for a mortgage, whether it’s through the Federal Housing Administration (FHA) or a VA loan backed by the Department of Veterans Affairs, one of the most important documents you’ll receive is the Loan Estimate (LE). This document helps you understand the true cost of your loan and allows you to compare offers from different lenders.
In this guide, we’ll break down everything you need to know to confidently understand your Loan Estimate—specifically for FHA and VA home loans.
What Is a Loan Estimate?
A Loan Estimate is a standardized three-page form lenders are required to provide within three business days after you submit a mortgage application. It includes:
Loan terms
Projected payments
Closing costs
Estimated taxes, insurance, and assessments
Details about the loan features (e.g., fixed or adjustable rate)
And other key terms
Whether you’re buying your first home or refinancing, understanding your Loan Estimate is critical to making informed financial decisions.
Learn more directly from the Consumer Financial Protection Bureau (CFPB).
FHA and VA Loans: A Quick Overview
FHA Loans
FHA loans are government-backed mortgages for buyers with lower credit scores or smaller down payments. Key features:
3.5% minimum down payment
More lenient credit requirements
Mandatory mortgage insurance
Visit HUD.gov for more on FHA loans.
VA Loans
VA loans are available to eligible veterans, active-duty service members, and some surviving spouses. Key benefits:
No down payment required
No private mortgage insurance (PMI)
Competitive interest rates
Limits on closing costs
See full eligibility and benefits at VA.gov.
Page 1 of the Loan Estimate: The Basics
1. Loan Terms
This section lists the loan amount, interest rate, monthly principal and interest, and whether those amounts can change in the future.
For FHA and VA loans:
FHA loans may have fixed or adjustable rates.
VA loans often offer fixed-rate options, but adjustable-rate versions (ARMs) are available.
Pro tip: Check the “Can this amount increase after closing?” section. For fixed-rate loans, this should be NO.
2. Projected Payments
This breaks down what your monthly payment will be over time:
Principal & interest
Mortgage insurance (FHA only)
Estimated taxes, insurance, and assessments
Important for FHA Loans: FHA borrowers must pay mortgage insurance premiums (MIP) upfront and monthly. This is clearly outlined here.
Important for VA Loans: VA loans do not require monthly mortgage insurance, which should be reflected by a lower monthly escrow estimate.
3. Costs at Closing
This summarizes the total cost you’ll need at closing:
Loan Costs (Origination + Services)
Other Costs (Taxes, Insurance, etc.)
Cash to Close
Use this section to get a high-level view of your out-of-pocket expense.
Page 2 of the Loan Estimate: Closing Cost Details
This is the “meat and potatoes” of your LE.
4. Loan Costs
A. Origination Charges
This includes application fees, underwriting fees, and any points you may be paying to lower your interest rate.
FHA loans may have origination fees capped by some lenders.
VA loans allow lenders to charge up to 1% of the loan amount in origination fees.
If you’re working with a VA-approved lender like Forever Home Financing, make sure they clearly explain these fees.
B. Services You Cannot Shop For
These are required services assigned by the lender:
Appraisal fees
Credit reports
Flood certification
VA Loans: The VA restricts what fees veterans can be charged. For example, a VA borrower cannot be charged a pest inspection fee in most cases (unless it’s customary for sellers to pay).
More on allowable charges: VA.gov – Fees Veterans Can and Cannot Pay
C. Services You Can Shop For
These include:
Title insurance
Survey fees
Pest inspections (for FHA loans)
Closing agent fees
Shop around for competitive rates here to save money.
5. Other Costs
E. Taxes and Other Government Fees
Covers recording fees and transfer taxes.
F. Prepaids
These include:
Prepaid interest
Homeowner’s insurance premiums
Property taxes
FHA and VA loans may require some prepaid amounts to be included in escrow.
G. Initial Escrow Payment at Closing
Lenders collect funds upfront for future payments like:
Property taxes
Homeowner’s insurance
MIP (FHA only)
H. Other
This might include:
Owner’s title insurance (optional)
Real estate commissions
HOA transfer fees
Page 3 of the Loan Estimate: Comparisons & Disclosures
6. Comparisons
This section helps you shop for the best loan. You’ll see:
Total payments in the first 5 years
APR (Annual Percentage Rate)
Total interest percentage (TIP)
Compare these numbers across multiple Loan Estimates to find the best deal.
FHA Loans: May show a higher APR due to MIP.
VA Loans: Lower APR since they do not require mortgage insurance.
7. Other Considerations
Covers:
Whether your loan is assumable (both FHA and VA loans typically are)
If the lender will service your loan or transfer it
Requirements for homeowners insurance
8. Confirm Receipt
This is not an obligation. Signing the Loan Estimate does not mean you’re committing to the loan—it just confirms you received it.
FHA-Specific Notes on the Loan Estimate
Mortgage Insurance: You will see both an upfront MIP and a monthly premium. This is standard and required unless you refinance into a different type of loan later.
Loan Limits: FHA loan limits vary by county. Visit HUD.gov FHA Limits to check your area.
Manual Underwriting: If your credit score is below 580, you may see additional lender overlays. Forever Home Financing specializes in helping lower-credit borrowers navigate FHA requirements.
VA-Specific Notes on the Loan Estimate
VA Funding Fee: Instead of mortgage insurance, VA loans charge a one-time funding fee. It can be financed into the loan and should appear in the “Other Costs” section.
No PMI: You should see $0 for monthly mortgage insurance—this is a VA benefit.
Appraisal Costs: VA appraisals may take longer and are governed by VA’s strict standards. Learn more here: VA.gov Appraisal Information
Final Thoughts
The Loan Estimate is your roadmap to understanding the real cost of buying a home with an FHA or VA loan. By breaking it down into manageable parts, you can confidently navigate your way to homeownership.
Whether you’re a first-time buyer or refinancing with a government-backed loan, choosing a lender that will help you understand your options is key.
For personalized mortgage guidance and to start your application, visit Forever Home Financing. And to learn more about government programs, explore: