Personal Finance

Dreaming of an Easy Way To Compare Mortgage Offers?

Name: Article on using Loan Estimate form to compare mortgage offers
Brand: Axos Bank

Apr 30, 2021

You’ve spent hours flipping through mortgage offers, and you’re no closer to picking one than when you started. The right mortgage could potentially save you thousands of dollars. Talk about pressure! Wouldn’t it be great if there was something that made it easy to compare loan offers? And what if you didn’t have to ask for this tool — it just came to you automatically. Now that would be a dream come true, wouldn’t it?

No need to dream. This amazing tool already exists. And it only takes a few minutes to learn how to use it.

What Is a Loan Estimate?

The Loan Estimate form contains important information about the mortgage you’re being offered. It’s designed to help you better understand the terms of the loan and any special features that go with it. This tool lets you confirm you’re getting the loan you want and also compare loan offers to find the one that’s right for your budget. You will receive your Loan Estimate from a lender within three business days of completing a mortgage loan application.

What Sections Can Help You Compare Offers?

All lenders use the same three-page Loan Estimate form. Before you start comparing loan offers, you’ll want to confirm that the information at the top of the first page is accurate. Make a note of any differences between the loan offers. Different loan terms, products, and types can cause variations in the interest rate and monthly payment. For example, when compared to a 30-year loan, a 15-year loan would generally have a lower interest rate but also a higher monthly payment.

Because the Loan Estimate is divided into sections, it’s easy to make side-by-side comparisons. A close look at the following sections will help you determine which loan offers the best terms:

Loan Terms

You will find the Loan Terms section at the top of the first page. The first three items listed are the loan amount, interest rate, and monthly principal and interest amount. Pay special attention to a “YES” in the column that talks about a change after the loan closes. It could mean a larger loan amount, higher interest rate, or larger payment in the future.

Comparison Tip

Watch for an offer with a larger loan amount or higher interest rate. The lender could be using it to cover closing costs that aren’t listed on the second page of the Loan Estimate.

Projected Payments

This section can be found in the middle of the first page. It shows loan principal and interest, mortgage insurance (if applicable), and estimated escrow amounts. The combined amounts make up your estimated total monthly payment. That’s the amount you will need to budget for each month.

Comparison Tip

Mortgage insurance increases the cost of your loan. It’s often required when your loan-to-value (LTV) climbs above 80%. If mortgage insurance is only listed on one offer, check to see if the loan amount is higher than on the other offers.

Costs at Closing

This is the final section on the bottom of the first page. It provides estimates of your closing costs and also the amount of money you will need to pay at the time the loan closes.

Comparison Tip

For a more accurate comparison, use the second page of the Loan Estimate. It gives you details on exactly what fees the lender is charging for the loan.

Loan Costs

When you move on to the second page of the form, you will find more detailed information on the different types of closing costs associated with the loan. These costs are grouped under Origination Charges, Services You Cannot Shop For, and Services You Can Shop For. Each of these groups should be reviewed. However, for comparison purposes, our focus will be on the Origination Charges section.

Origination Charges

The fees listed under Originations Charges can vary significantly by lender. You may find a combination of any of the following fees:

% of Loan Amount (Points)
Application Fee
Origination Fee
Underwriting Fee
Processing Fee
Lender Fee

Comparison Tip

A points fee lowers your interest rate but increases the cost of your loan. In contrast, a fee with a “$0” across from it reduces the cost of your loan, like in the above example of our $0 Lender Fee.

Total Closing Costs

This section shows the total of all closing costs listed on the second page of the Loan Estimate. It combines the loan costs with other costs, such as taxes, prepaids, and escrow payments. If there are Lender Credits, the amount will also be listed here.

Lender Credits

A Lender Credit is used to lower your closing costs and the amount you pay at the close of your loan. In exchange for this credit, you pay a higher interest rate.

Comparison Tip

A Lender Credit lets you pay less at the close of your loan, but you pay more in interest over time because of the higher interest rate.

Comparisons

The Comparisons section is found on the last page of your Loan Estimate. It offers useful calculations that help you compare your loan offers. There’s an estimate of the principal that can be paid off in 5 years. The Annual Percentage Rate (APR) of the loan offer shows the interest cost of the loan with fees and other charges included. And the Total Interest Percentage (TIP) reflects the interest you will pay over the life of your loan compared to the amount you borrowed.

Comparison Tip

Be careful when comparing fixed-rate and adjustable-rate loans. The APR calculation on an adjustable-rate loan does not reflect the maximum interest rate of the loan.

How Can You Take It to the Next Level?

After you review your Loan Estimate, contact the lenders that made the offers. This gives them an opportunity to review the loan with you and answer your questions. A lender should understand that you are considering multiple offers and be comfortable reviewing their offer with you. A mortgage is a major decision, and you want to know what you are getting before accepting an offer.

After reviewing your offers, you might have questions like the following for a lender:

Why is your interest rate higher than my other offers?
Can you waive or reduce any of your origination fees?
Am I paying for closing costs or are you covering them with a higher interest rate?
Why is my loan amount larger on your offer than the others I received?
How will financing my closing costs affect my loan amount?
Is the APR higher on your offer because your fees are higher?

A Loan Estimate is a tool you can use to compare loan offers. It’s designed to make it easy to find important information that could save you money on your next mortgage. A review of loan terms, projected payments, closing costs, and APR numbers can help you select a loan that fits your needs. And a lender should always have time to discuss their offer with you.

Are you not getting the right answers to your loan questions? Want a second opinion on your loan offer? Let an Axos mortgage expert review your Loan Estimate to see if we can offer you a better mortgage. For a no-hassle loan review, call 888-546-2634 to speak with an experienced mortgage professional today.