Choosing a loan offer
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. Having multiple Loan Estimates can help you negotiate.
What to do now
Compare the details of your Loan Estimates to see how they stack up against one another.
Use our Loan Estimate Explainer to understand what each offer means for you. Look at:
- The loan amount.
- The interest rate. Interest rates can change daily, so a difference in rate between two lenders could be because of market changes for Loan Estimates issued on different days. For adjustable-rate mortgages (ARMs), look at the worst-case scenario if interest rates rise.
- The monthly principal and interest payment.
- The monthly mortgage insurance payment (if any).
- The total monthly payment, including principal and interest, mortgage insurance, and escrow for property taxes and homeowner’s insurance.
- The upfront loan costs (listed on page 2 in Section D, Total Loan Costs), especially the origination charges.
- The lender credits (listed on page 2 under Section J, Total Closing Costs).
- The “cash to close” (listed on page 2). You typically need a cashier's check or wire transfer for this amount at closing.
Compare the upfront lender costs
When comparing closing costs, focus on the fees that vary by lender. Those are the total origination charges in Section A, the services listed in Section B, and lender credits listed in Section J. Origination charges are upfront fees charged by your lender. Lender credits are rebates to offset your closing costs.
Calculate your five-year cost of borrowing
On average, 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 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.
Confirm your loan option and approach to points or credits
If a lender gave you something different than what you asked for, or you want to see other options, it's not too late. You can go back to each of your lenders and ask to see a Loan Estimate that more closely matches your ideal scenario.
Negotiate to get the best deal for you
Negotiating can save you money. Your best bargaining chip is usually having Loan Estimates from other lenders in hand. Often, lenders are willing to match or beat their competitors’ offers. They can also explain why their estimates differ from other lenders. If the lender you feel most comfortable with is charging more, ask them to match what you find elsewhere. Negotiating is best done over a short timeframe after you have a signed purchase contract. If you switch lenders later, talk to the lender to make sure they can close on time.
What to know
Your comparison should focus on numbers that are within the lender’s control
If one Loan Estimate shows significantly lower taxes and insurance, it doesn’t mean that loan is a better deal. Lenders don’t control your taxes and insurance. That’s true for some other costs too. If the following costs aren’t similar, ask your lender why:
- Escrow amounts for property taxes and insurance (page 1)
- Taxes and other government fees (page 2, Section E)
- Prepaids (page 2, Section F)
- Initial escrow at closing (page 2, Section G)
How to avoid pitfalls
Loans with “no closing costs” aren’t free
Some lenders advertise loans with “no closing costs,” but the catch is the loan has higher monthly payments. Get more details about how no-closing cost loans work.
Stay alert for warning signs
If what a Loan Estimate says is very different from what you discussed with your loan officer, be wary. Ask questions. It could be a simple miscommunication, or it could be a sign that you should consider choosing a different lender.
FAQs
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. Having multiple Loan Estimates can help you negotiate.
Why is it important to compare loans and get offers from several lenders? ›
Getting multiple Loan Estimates can help you save money and get a mortgage that best meets your needs. Homebuyers can potentially save $600 to $1,200 per year by getting mortgage offers from multiple lenders.
Why is it important to shop and compare loan offers? ›
Comparing loan estimates from different lenders enables you to evaluate the overall affordability of each loan and identify any hidden fees or expenses. Additionally, negotiating closing costs with your lender can potentially save you money at the time of closing.
Can you negotiate lender credit? ›
Borrowers can typically negotiate lender credits during the mortgage application process. You stand a better chance of negotiating a lower rate increase with a sizable down payment, a low debt-to-income ratio, and a good credit score.
How to compare loans? ›
Look beyond loan interest rates
- Interest rates: An essential element, the interest rate significantly influences your overall loan expense. ...
- Loan amount and duration: Make sure the loan amount suits your requirements, and the repayment tenure aligns with your comfort level.
Annual percentage rate (APR)
A standard calculation used by lenders. It is designed to help borrowers compare different loan options. For example, a loan with a lower stated interest rate may be a bad value if its fees are too high.
Is it OK to compare lenders? ›
By comparing offers from multiple lenders, you're more likely to find the best rate and save money. Before shopping for offers, determine what type of mortgage makes the most sense for you and your finances. Consider factors like interest rates, discount points and closing costs when comparing offers.
What is the importance of loan negotiation? ›
Highlights: Some lenders may be willing to negotiate with cash-strapped borrowers to offer relief options and minimize the lender's financial loss. Common debt negotiation strategies include asking for reduced interest rates, working with a lender to create a repayment plan and considering debt consolidation.
How do you negotiate with multiple lenders? ›
Compare prices from multiple providers to find the best deals. 2. Ask for a Loan Estimate from multiple lenders. This document breaks down all the loan costs, allowing you to compare offers and potentially negotiate better terms.
Can make it possible to negotiate a better price or at least better financing terms? ›
Saving up and paying cash may make it possible to negotiate a better price, or at least better financing terms. Use of credit may make more sense for a larger purchase, especially if it's something that appreciates in value, like a home—or if it means you avoid having to withdraw from a savings or investment account.
However, it's important for consumers to understand how they work and what factors to consider before taking out a loan. By comparing rates, understanding fees, and considering their own financial situation and budget, consumers can make informed decisions about borrowing money and achieving their financial goals.
What does the comparison table tell the borrower? ›
What does the comparison table tell borrowers? A loan comparison table breaks down the key points of different types of mortgages. Certain loans can come with a smaller monthly payment, a lower interest rate, a shorter repayment period, or less overall interest charged. What is APR vs.
What should you not say to a lender? ›
5 Things You Should Never Say When Getting a Mortgage
- 'I need to get an extra insurance quote due to … ...
- 'I can't believe how much work the house needs before we move in' ...
- 'Please don't tell my spouse what's on my credit report' ...
- 'I'm still working out the details on my down payment'
Concisely portraying the financial hardship that made you unable to pay your bills can make the creditor more sympathetic to your case. Start by lowballing, and try to work toward a middle ground. If you know you can only pay 50% of your original debt, try offering around 30%.
How to get a debt collector to settle for less? ›
6 Steps for Negotiating With Debt Collection Agencies
- Learn About the Debt. By law, collection agencies must provide evidence that the debt is your. ...
- Understand What You Can Afford To Offer. ...
- Speak to the Debt Collector. ...
- Make Sure All Agreements Are in Writing. ...
- Make Your Payments. ...
- Negotiate Improvement to Your Credit Reports.
When comparing loans, you should compare the effective annual rates. III. Lenders are required by law to disclose the effective annual rate of a loan to prospective borrowers.
What is the most effective rate to consider when comparing loans? ›
The APR, however, is the more effective rate to consider when comparing loans. The APR includes not only the interest expense on the loan but also all fees and other costs involved in procuring the loan. These fees can include broker fees, closing costs, rebates, and discount points.
Which indicator should a borrower use when comparing loan rates? ›
Next, shift your focus to the loan's annual percentage rate (APR), a strong indicator for making “apples-to-apples” comparisons between lenders. That's because the APR factors in the interest rate plus other fees and costs (or credits) associated with borrowing.
What should you compare when selecting loans APR or APY? ›
Both are helpful when you're shopping for rates and comparing which is best for you. APY helps you see how much you could earn over a year in a savings account or CD. APR helps you estimate how much you could owe on a home loan, car loan, personal loan, or credit card.
