Two lenders quote you two different rates. One looks cheaper. Then you look at the cash to close and the cheaper one costs more. This happens all the time, because the interest rate is only one of dozens of numbers on a Loan Estimate.
The good news: every lender has to use the same three-page form, so you can compare them line by line. Here's how.
Before you compare: make the quotes match
Two Loan Estimates only compare fairly if they describe the same loan. Check these first, at the top of page 1:
- Same loan type and term, like a 30-year fixed FHA loan
- Same loan amount and purchase price
- Same day. Rates move daily, so a quote from Monday and a quote from Thursday aren't comparable
- Same lock length, like 30 or 45 days
If any of these differ, ask the lenders to re-quote before you go further.
Page 1: rate, APR, and monthly payment
Interest rate. This sets your principal and interest payment. It's what lenders advertise.
APR, found on page 3. The APR adds lender fees and points to the rate. If one lender has a lower rate but a higher APR, it is probably charging more upfront to get that rate.
Projected payments. Check that both estimates use similar figures for property taxes and homeowner's insurance. If one estimate shows a much lower payment, it may be using low tax or insurance numbers, not offering a better loan.
Page 2, Section A: origination charges
This is the section the lender controls, and the most important one to compare. It includes application, underwriting, and processing fees, plus any discount points.
Points are prepaid interest. Paying them lowers your rate. Some quotes include points without making that obvious. Ask each lender to quote at "par," meaning zero points, so you're comparing the same thing.
If Section J shows a lender credit, the lender is covering some closing costs in exchange for a slightly higher rate. That can be a good trade, but compare it on purpose.
Sections B and C: third-party services
Section B, services you cannot shop for: appraisal, credit report, flood certification. These should be similar between lenders.
Section C, services you can shop for: title insurance, settlement or escrow fees, and sometimes a survey. These can vary, and you're allowed to pick your own provider.
Section E: taxes and government fees
Recording fees and any transfer taxes are set by the county or state. They should be nearly identical between lenders. A big difference here usually means one estimate has a mistake.
Sections F and G: prepaids and escrow
Section F, prepaids: your first year of homeowner's insurance, prepaid daily interest until your first payment, and sometimes property taxes.
Section G, initial escrow deposit: the months of taxes and insurance the lender holds in reserve.
These aren't lender fees, so a lower number doesn't mean a cheaper loan. It may just mean a different closing date or tax estimate. Don't pick a lender because of Sections F and G.
Mortgage insurance
Check what each estimate shows for mortgage insurance: monthly PMI on a conventional loan, upfront and monthly MIP on an FHA loan, the guarantee fee on a USDA loan, or the funding fee on a VA loan. Two different loan types can produce very different total costs at the same rate. Our guide on PMI in Utah explains how it is priced and removed.
Page 2: cash to close
This is the total you'll bring to closing after your down payment, closing costs, and any credits. It's one of the two most honest numbers on the form.
Page 3: "In 5 Years" and Total Interest Percentage
The In 5 Years box shows what you'll have paid in total, and how much principal you'll have paid off, after five years. If you expect to move or refinance within a few years, this is often the single best number for comparing lenders.
What a Loan Estimate won't show you
The form compares costs. It doesn't show:
- Down payment assistance you didn't get offered. In Utah, a lender approved for city, county, and state programs may be able to cut your cash to close far more than a small rate difference. Ask each lender which Utah down payment programs you may qualify for.
- Loan options you weren't shown, like a portfolio adjustable-rate loan that may cost less over the years you actually plan to keep it.
- How reliably the lender closes on time. Ask, and read reviews.
Get a second opinion
If you already have a Loan Estimate, we're glad to look it over with you, with no pressure to switch. Book a free call or visit our second opinion page and we'll walk through it section by section.