How do I know if my mortgage rate and Loan Estimate are a good deal?

What is a Loan Estimate?

It's the three-page form a lender sends you within three business days of applying. Every lender uses the exact same form, which makes it the easiest way to compare offers apples to apples.

What should I look at first?

1. Is the rate locked? Check the top of page 1. If it isn't locked, it's not a real offer yet. It can still change.
2. What are you paying for that rate? Go to page 2, Section A. Look for points and lender fees. A super-low rate with two or three points isn't a deal; you're just paying interest up front.
3. Lender credits. Page 2 also shows any credit the lender is giving you toward closing costs. Sometimes a slightly higher rate with a credit is the smarter move.
4. The 5-year cost. Page 3, the "In 5 years" line. It rolls up principal, interest, mortgage insurance, and loan costs. If I could only look at one number, it'd be this one.
5. APR. Also on page 3. It's handy for spotting expensive offers, as long as you're comparing loans with the same term.

How do I compare two offers fairly?

Ask each lender for the same loan type, same down payment, and same lock period, on the same day. Rates move every day, so a Monday quote and a Thursday quote aren't comparable. If one offer is better, show it to the other lender and ask if they'll match it. That's completely normal.

What differences aren't the lender's fault?

Taxes, homeowners insurance, prepaid interest, escrow deposits, and title fees can look different from one estimate to the next just because of assumptions. Ask everyone to use the same numbers for those, so you're really comparing what each lender controls.

Example scenario (illustrative)

A first-time buyer in Texas gets two Loan Estimates for the same FHA loan. Lender A has the lower rate, but page 2 shows 1.5 points. Lender B's rate is a little higher, with no points and a small lender credit. Since the buyer expects to move or refinance within five years, page 3 shows Lender B actually costs less. Points only pay off if you keep the loan long enough to earn them back.

Our take

The best deal is the lowest total cost for as long as you'll really keep the loan, not the lowest rate on a flyer. Get your quotes on the same day, read pages 2 and 3, and ask about every line you don't understand. A good loan officer is happy to explain. If you want a second set of eyes on your Loan Estimate, send it to me and I'll tell you straight whether it's a good deal.