How to Compare Mortgage Offers

Compare mortgage offers using the standardized Loan Estimate every lender is required to provide. Request 3 LEs inside a 14-day window. Compare APR (not just the rate), total cash to close, lender fees, and the 5-year cost shown on page 3. The lender with the lowest rate often loses to a competitor with lower fees. The decision usually comes down to total cost over how long you plan to own the home.

The Loan Estimate Is Your Comparison Tool

The Consumer Financial Protection Bureau requires every lender to issue a 3-page Loan Estimate within 3 business days of a complete application. By federal mandate, every LE uses identical formatting, identical line items, and identical order. That makes side-by-side comparison straightforward.

What counts as a complete application:

• Borrower name
• Income
• Social Security Number (for credit pull)
• Property address
• Estimated property value
• Loan amount requested

The lender cannot demand verification documents (W-2s, bank statements) before issuing the LE. If a lender refuses to give you an LE before docs, find another lender.

Request 3 LEs from at least 3 lenders. Apply inside a 14-day window. FICO bundles all mortgage inquiries in that window as a single inquiry, so your credit score drops only once (roughly 5 points, recovers in months). For lender selection guidance, see how to choose a mortgage lender.

Page 1: Loan Terms and Projected Payments

The first page summarizes the loan. Three things to check first:

| Section | What to compare | |---|---| | Loan Amount | Should match across LEs. If not, ask why. | | Interest Rate | The note rate. Lower is better, but fees often offset. | | Monthly Principal and Interest | Should match calculation given rate and term. | | Prepayment Penalty | Should be "NO" on QM loans originated after 2014. | | Balloon Payment | Should be "NO" unless you specifically chose a balloon loan. |

The Projected Payments section shows years 1 to 7, year 8 to 30, etc. Useful for ARMs (where the rate changes) and FHA loans (where MIP may drop after 11 years).

The Estimated Taxes, Insurance & Assessments section shows escrow. Same property = same taxes and insurance, so these should match across LEs. If one lender estimates dramatically lower escrow, ask why; they may be lowballing to make the payment look attractive.

Page 2: Closing Cost Details

This is where lenders differentiate. The fees are split into two main sections.

Section A: Origination Charges (lender controlled, negotiable)

• Origination fee (lender's profit margin)
• Discount points (buying down the rate)
• Application fee
• Processing fee
• Underwriting fee
• Rate lock fee (sometimes)

These vary widely. A typical no-points conventional loan has $500 to $3,000 in origination. Big banks tend to charge more. Online lenders charge less. Brokers usually package their commission into origination.

Section B: Services You Cannot Shop For

• Appraisal fee ($500 to $700)
• Credit report fee ($30 to $75)
• Flood determination ($10 to $30)
• Tax service fee ($60 to $90)

These are roughly fixed across lenders because the lender chooses the vendor.

Section C: Services You Can Shop For

• Title search ($200 to $500)
• Lender's title insurance ($300 to $1,500)
• Settlement or escrow fee ($300 to $900)
• Survey, if required

You can choose your own title company and shop title insurance independently. Doing so saves $200 to $1,000 on average.

Section E: Taxes and Other Government Fees

• Recording fees (county-specific)
• Transfer taxes (state-specific, varies wildly: $0 in some states, 1 to 2 percent in others)

Fixed by jurisdiction. Same across lenders for the same property.

Section F: Prepaids

• Prepaid interest from closing date to end of month
• Property tax prepaid
• Homeowners insurance prepaid (12 months)
• Mortgage insurance prepaid (FHA UFMIP, USDA upfront fee, VA funding fee)

Prepaid interest varies with closing date (close near month-end to minimize). Insurance prepays depend on the carrier you choose.

Section G: Initial Escrow at Closing

• Months of property tax to fund escrow
• Months of homeowners insurance to fund escrow
• Months of mortgage insurance to fund escrow

The number of months varies by closing date and lender preference.

Page 3: The Comparison Section

The most useful part of the LE for comparison. Two key numbers:

Calculating Cash to Close (Section J)

The actual cash you bring on closing day:

• Loan Amount
• Total Closing Costs (D + I from page 2)
• Less seller credits
• Less lender credits
• Plus deposit (earnest money already paid)
• Less down payment

This number should be your first apples-to-apples comparison. If Lender A wants $14,200 at the table and Lender B wants $11,800 with the same down payment, Lender B has $2,400 less in fees or more in credits.

In 5 Years (Section A)

The total amount you will have paid in principal, interest, mortgage insurance, and loan costs over the first 5 years. Also shows the principal balance remaining.

This is the single best comparison number for most borrowers. It rolls everything together. If Lender A's 5-year cost is $145,000 and Lender B is $151,000, Lender A wins by $6,000 over 5 years, even if Lender B has a slightly lower note rate.

APR

Annual Percentage Rate. Includes the note rate plus most prepaid finance charges, expressed as a single percentage. APR is always higher than the note rate.

Example. Two loans on $400,000:

| Lender | Rate | Fees | Points | APR | |---|---|---|---|---| | A | 6.500% | $4,200 | 1.0 ($4,000) | 6.708% | | B | 6.625% | $1,800 | 0 | 6.689% |

Lender B has the higher rate but the lower APR. Over 30 years, Lender B is cheaper. Over 5 years, the answer depends on how the fees compound (use the 5-year cost number, not just APR).

Total Interest Percentage (TIP)

The total interest you will pay over the life of the loan, expressed as a percentage of the loan amount. A 30-year loan at 6.5 percent has a TIP of around 127 percent. The TIP is the same across lenders at the same rate and term, so it is not useful for comparison, but it is shocking to look at.

How to Negotiate

Once you have 3 LEs, compare line by line. Identify the lowest origination, lowest discount points (or rate without points), lowest title, lowest 5-year cost.

Then go back to each lender:

"Lender X is offering me a 5-year cost of $145,000 with $1,800 in origination. You are at $151,000 with $3,200 in origination. Can you match or beat?"

What works:

• Lender reduces origination by $500 to $1,500
• Lender adds a lender credit toward closing costs
• Lender drops a point and adjusts the rate
• Lender removes processing or underwriting fees

What does not work:

• Asking lenders to drop third-party fees (appraisal, title, credit report)
• Asking for a lower rate without a competing LE that shows it
• Negotiating after locking the rate

Most lenders will negotiate $500 to $2,000 down on origination if you have a competitive LE. This is the highest-ROI hour of your home-buying process.

Discount Points: The Math

A discount point is 1 percent of the loan amount paid upfront to lower the rate. Most lenders offer points in 0.125 or 0.25 increments. Each point typically drops the rate by 0.125 to 0.375 percent.

Example on a $400,000 loan:

• 0 points: 6.625% rate, $0 upfront
• 1 point: 6.375% rate, $4,000 upfront
• 2 points: 6.125% rate, $8,000 upfront

Monthly P&I:

• 6.625%: $2,562
• 6.375%: $2,494
• 6.125%: $2,432

Monthly savings from 1 point: $68. Break-even on $4,000 fee: 59 months (~5 years). Monthly savings from 2 points: $130. Break-even on $8,000 fee: 62 months (~5.2 years).

Points make sense only if you plan to stay 5-plus years and you have the cash on top of the down payment and reserves.

Use the refinance break-even calculator to model your specific scenario.

No-Closing-Cost Loans

Some lenders advertise no-closing-cost loans. There is always a tradeoff. Two structures:

1. Lender credit in exchange for higher rate. The lender pays your closing costs at the table and increases the rate by 0.25 to 0.5 percent. You pay over 30 years.
2. Fees rolled into the loan balance. Your loan balance increases by the closing cost amount. You pay over 30 years with interest.

Both can be the right choice if you will refinance or sell within 5 years. Both are the wrong choice for long-term holders.

Common Mistakes

Picking based on advertised rates. Advertised rates assume 760-plus credit, 20 percent down, primary residence. Your actual rate may be 0.25 to 0.75 percent higher.

Comparing rates without comparing fees. Always compare APR or 5-year cost, not the note rate alone.

Letting lender estimates of escrow vary wildly. Same property = same taxes and insurance. If one LE shows dramatically lower escrow, ask why before celebrating.

Choosing the friendliest loan officer. Service matters, but a 0.25 percent rate gap costs $20,000 on a $400,000 loan over 30 years. Run the math.

Failing to lock the rate. Once you accept an offer, lock the rate that day. Markets move daily. A 0.25 percent rate increase between LE and lock costs $100-plus per month.

Switching lenders after the appraisal is ordered. You can switch any time before closing, but switching after the appraisal means paying for a new one.

Key Glossary Terms

For deeper definitions of terms used here:

• APR (Annual Percentage Rate)

What to Do Next

If you have not applied yet, see how to get pre-approved for a mortgage and how to choose a mortgage lender.

If you have 3 Loan Estimates in hand, sit down for an hour with them side by side. Compare APR, 5-year cost, and total cash to close. Pick the lender. Lock the rate.

For ongoing rate context, the Freddie Mac Primary Mortgage Market Survey publishes weekly national averages at https://www.freddiemac.com/pmms.

Citations

• Consumer Financial Protection Bureau, Loan Estimate explainer: https://www.consumerfinance.gov/
• Freddie Mac Primary Mortgage Market Survey: https://www.freddiemac.com/pmms
• Federal Housing Finance Agency: https://www.fhfa.gov/