Compare your Loan Estimates
Comparing Loan Estimates helps you decide which lender offers the best deal on the loan amount and kind of loan you have selected.
There are several factors to consider when choosing a lender—for example, the cost of the loan, your comfort with the loan officer’s ability to answer your questions, and your confidence that the lender can meet your closing timeframe.
What to do now
Compare the details of your Loan Estimates to see how they stack up against one another
- The loan amount.
- The interest rate. If you’re considering an adjustable rate mortgage (ARM), look at the worst-case scenario if interest rates rise.
- The monthly principal and interest payment.
- The monthly mortgage insurance payment (if any).
- Your total monthly costs, including principal and interest, mortgage insurance, property taxes and homeowners’ insurance (often included in escrow) and home owners association dues (if applicable).
- The upfront loan costs (listed on page 2 in Section D, Total Loan Costs).
- The lender credits (listed on page 2 under Section J, Total Closing Costs).
- The amount of cash you’ll need to bring to closing.
Take a look back at your budget
How do these numbers compare with your budget? Are you comfortable you can afford both the upfront costs and the total monthly payments?
Calculate your five-year cost of borrowing
On average, most borrowers keep a mortgage for about five years before moving or refinancing. While your situation may be different, figuring out the total dollar amount you will pay in interest and fees over five years is a good way to compare loan offers.
- On page 3 of the Loan Estimate, locate the “In 5 years” line in the Comparisons section. The first number shows you the total dollar amount (including principal) you will pay over five years. The second number shows you the amount of principal you will have paid off after five years.
- Subtract the second number from the first number, and you’ll get the total amount of interest and fees you will have paid after five years. This is your five-year cost of borrowing.
- Note: If you’re considering an adjustable rate mortgage (ARM), keep in mind that the five-year cost assumes that interest rates stay the same. If interest rates go up, your actual cost of borrowing will be higher.
Compare the Annual Percentage Rate (APR)
The APR takes into account both interest and loan fees. It shows which loan is less expensive over the full term of the loan.
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What to know
Know when you are comparing apples-to-apples and when you’re comparing apples-to-oranges
Do all your Loan Estimates show the same kind of loan with the same features?
For example, a fixed-rate mortgage is different than an adjustable-rate mortgage (ARM).
When were your Loan Estimates issued?
Interest rates can change daily, so a difference in rate between two lenders may be due to market changes if the Loan Estimates were issued on different days.
Do all your Loan Estimates treat homeowners insurance and property taxes the same way (included in your monthly payment as escrow, or paid separately)?
If they don’t, you’ll need to make adjustments to ensure your total monthly payments are comparable.
Do all your Loan Estimates use similar numbers for estimated taxes and insurance?
If one Loan Estimate shows significantly lower taxes and insurance, that doesn’t mean that loan is a better deal. Lenders don’t control your taxes and insurance. Ask your real estate agent to help you figure out which set of numbers is more realistic.
Do your Loan Estimates list condo or homeowners’ association (HOA) dues?
If your new home has condo or HOA dues, you often pay them separately from your monthly mortgage payment. HOA dues may not appear on your Loan Estimate if the lender does not have this information. If one lender does include these amounts on your Loan Estimate and another does not, then you need to make adjustments to make sure you’re comparing similar numbers.