Every lender must give you a Loan Estimate within three business days of receiving your mortgage application. It's a standard three-page form, the same layout at every lender, which makes it the best tool you have for comparing offers line by line.
The catch: the comparison is only fair if every estimate is for the same loan. Same loan amount, same term, same loan type, same down payment, and quotes requested on the same day.
The five numbers to compare
- Interest rate (page 1). Sets your monthly principal and interest.
- Total closing costs (page 2, Section J). Everything you pay at closing, minus lender credits.
- Origination charges (page 2, Section A). The lender's own fees, including any points. This is where lenders differ most.
- "In 5 Years" (page 3, Comparisons). What you'll have paid in total over five years, and how much principal you'll have paid off. Useful if you might move or refinance.
- APR (page 3). The yearly cost including the rate and certain fees. A lower APR at the same rate means lower fees.
Page 1: Loan terms and payment
Check the top section for anything that can change:
- Can the interest rate increase? On a fixed-rate loan, this should say No.
- Is there a prepayment penalty? Most borrowers want No.
- Is there a balloon payment? Most borrowers want No.
The Projected Payments table shows your monthly payment including estimated taxes and insurance, and when mortgage insurance ends.
Rate lock: look near the top for whether the rate is locked and until when. An unlocked rate can change before closing.
Page 2: Closing cost details
This page is split into sections. The two that matter most for comparison:
Section A, Origination Charges. Application fees, underwriting fees and points. Lenders can't increase these after issuing the estimate, except in specific situations such as a change in your application.
Section B, Services You Cannot Shop For. Appraisal, credit report and flood certification fees chosen by the lender.
Section C, Services You Can Shop For. Title services and survey. The lender gives you a list of providers, but you can pick your own. Getting your own quotes for title services can save a few hundred dollars.
Sections E through H cover taxes, government fees, prepaid items (like homeowners insurance and interest) and the initial escrow deposit. These depend mostly on the property and the closing date, so they should be similar across lenders. If one lender's prepaid items look much lower, it may simply have assumed a different closing date.
Page 3: Comparisons
In 5 Years shows two numbers: total paid in principal, interest, mortgage insurance and loan costs over five years, and how much of that went to principal. If you're not sure you'll keep the loan long term, this is often the most useful single comparison.
Total Interest Percentage (TIP) is the total interest you'd pay over the full term as a percentage of the loan amount. It's meaningful only if you keep the loan to the end.
A worked comparison
Two estimates for the same $320,000, 30-year fixed purchase loan:
| Lender A | Lender B | |
|---|---|---|
| Interest rate | 6.375% | 6.500% |
| Points (Section A) | 0.5 point = $1,600 | $0 |
| Other origination fees | $1,200 | $1,495 |
| Total origination (Section A) | $2,800 | $1,495 |
| Monthly principal and interest | $1,996 | $2,023 |
Lender A costs $1,305 more upfront and saves about $26 a month. The break-even is about 50 months. If you plan to keep the loan more than about four years, Lender A is cheaper. If not, Lender B.
How to use estimates to negotiate
Lenders know you're comparing. If one lender's origination charges are lower, show that estimate to the lender you prefer and ask if it can match. Many will adjust fees or offer a lender credit to keep your business.
What happens next
Once you choose a lender and lock your rate, you'll receive a Closing Disclosure at least three business days before closing. Compare it with your Loan Estimate. Most of Section A should not have gone up, and any changes should have a clear explanation.