How Do I Compare Two Loan Estimates?

What the Loan Estimate Contains

The Loan Estimate (LE) is a standardized form required by the Consumer Financial Protection Bureau. Every lender must use the same format, which makes side-by-side comparison possible. The form is three pages and covers the loan terms, projected payments, and closing costs.

Page 1: The Loan Terms

The top of page 1 shows the loan amount, interest rate, and whether the rate is fixed or adjustable. It also shows the projected monthly payment broken into principal and interest, mortgage insurance (if applicable), and estimated escrow.

The rate shown here is the note rate — the rate that determines your monthly payment. It does not include fees. Two lenders can show the same rate with very different total costs.

Page 2: The Closing Costs

This is the most important page for comparison. Closing costs are organized into sections:

• Section A — Origination Charges: These are the lender's direct fees — origination points, processing fees, underwriting fees. This is where lenders have the most discretion and where the biggest differences between offers appear.
• Section B — Services You Cannot Shop For: Appraisal, credit report, flood determination. These are ordered by the lender and you cannot choose the provider. Costs should be similar across lenders.
• Section C — Services You Can Shop For: Title insurance, settlement services, attorney fees. You can choose your own providers for these, so the lender's estimate may not reflect your actual cost.
• Section E — Taxes and Government Fees: Transfer taxes, recording fees. These are set by the jurisdiction and should be identical across all offers.
• Section F — Prepaids: Prepaid interest, homeowner's insurance premium, property taxes. These are not fees — they are costs you would pay regardless of which lender you use.
• Section G — Initial Escrow Payment: The upfront deposit into your escrow account. Also not a lender fee.

The Numbers That Actually Matter for Comparison

When comparing two offers, focus on these specific figures:

• Section A total: The lender's direct fees. This is the most apples-to-apples comparison point.
• APR: Located on page 3. The APR incorporates the rate plus most fees into a single percentage, allowing a more accurate comparison than the note rate alone.
• Total interest paid: Also on page 3. This shows the total interest cost over the full loan term at the quoted rate. A lower rate saves more over a long hold period; a higher rate with lower fees may be better if you plan to sell or refinance within a few years.
• Cash to close: The total amount you need to bring to closing. This includes down payment, closing costs, and prepaids, minus any lender credits.

Points and Lender Credits

Lenders often offer a choice between paying points to lower the rate or accepting a higher rate in exchange for a lender credit that offsets closing costs. Neither is inherently better — the right choice depends on how long you plan to keep the loan.

To evaluate the tradeoff, calculate the break-even point: divide the cost of the points by the monthly savings from the lower rate. If you plan to keep the loan longer than the break-even period, paying points makes sense. If you plan to sell or refinance before the break-even, the points are a net cost.

What to Ask When Comparing Offers

• Are these rates locked or floating? Rates can change between the estimate and closing.
• What is the lock period, and what happens if closing is delayed?
• Are the Section B and C estimates accurate, or are they placeholders?
• Is the origination fee negotiable?
• What is the total cost of the loan over the period I plan to hold it?

A Practical Example

Lender A offers a rate of 6.75% with $4,500 in Section A origination charges. Lender B offers 6.625% with $8,200 in Section A charges. The lower rate from Lender B costs $3,700 more upfront. If the lower rate saves approximately $85 per month in principal and interest, the break-even is approximately 44 months. If you plan to keep the loan longer than 44 months, Lender B is the better deal. If you expect to sell or refinance within three years, Lender A costs less overall.