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How do you compare two mortgage quotes?
The Loan Estimate is a standardized form for exactly this, and most people compare the wrong box on it. Here is which numbers to line up, and the tolerance rules that tell you which quoted costs are promises and which are guesses.
Lenders have to give you the same form, with the same boxes, in the same order. That was the entire point of the Loan Estimate: make quotes comparable. It works — but only if you compare the right parts, and the parts most people look at are the two least useful.
The two numbers people compare, and why both mislead
The interest rate. It says nothing about what the loan cost to obtain. A 6.5% quote with two points is a worse deal than a 6.75% quote with none, for most holding periods.
The monthly payment. Worse, because it can differ for reasons that are not about the loan at all. One lender estimates your property tax from the seller's old assessment, another from the likely reassessment. One includes a full escrow cushion, one does not. You end up comparing two lenders' guesses about your county.
What to compare instead
Line the forms up side by side and read four things:
- Loan Costs, section A — Origination Charges. This is the lender's own price: origination fee, points, underwriting, processing. It is the number the lender actually controls and the cleanest basis for comparison.
- Points, specifically. Quoted separately in section A. A quote with points is buying a lower rate; make sure you know whether you asked for that.
- Cash to Close, on page 2. The real total.
- Total Interest Percentage (TIP), on page 3. Total interest paid over the loan's life as a percentage of the loan amount. It is the most under-read figure on the form.
And make sure the quotes are the same loan on the same day. Different terms, different down payments or quotes a week apart are not comparable, and pricing moves daily.
The loan estimate comparison calculator lays two quotes out box by box so the difference is in the lender's charges rather than in their guesses about your escrow.
Which quoted costs are actually binding
This is the part that turns the form from a marketing document into a commitment, and it is not widely known. Charges fall into three tolerance categories between the Loan Estimate and the Closing Disclosure.
Cannot increase at all:
- Fees paid to the lender, the mortgage broker, or an affiliate of either, for a required service
- Fees for required services from providers you were not permitted to shop for
- Transfer taxes
Can increase by up to 10% in total:
- Recording fees
- Fees for required services where you chose a provider from the lender's written list
Can increase by any amount:
- Prepaid interest, property insurance premiums and initial escrow deposits
- Services you shopped for from a provider not on the lender's list
- Third-party charges the lender does not require
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The honest way to shop
Ask two or three lenders for a Loan Estimate on the same day, for the same loan amount, term and down payment. Once you supply six pieces of information — name, income, Social Security number, property address, an estimate of the property's value and the loan amount — the lender must deliver a Loan Estimate within three business days, and cannot require anything further first.
Then ask each lender to match the best section A you received. This is a normal request and it works more often than people expect, because section A is the part they control.
Credit checks for mortgages within a short shopping window are treated as a single inquiry by the common scoring models, so shopping several lenders does not stack up damage to your score.
What to ask
- Can I have this as a Loan Estimate, not a worksheet? Only the Loan Estimate carries the tolerance protections.
- Is this quote with points? Then ask for the zero-point version.
- What is your section A total? That is the like-for-like number.
- What rate could you offer with a lender credit large enough to cover closing costs? The zero-cost quote and the lowest-rate quote bracket the whole deal.
- Which of these third-party services can I shop for? Anything on that list is negotiable, and anything off it is capped by the tolerance rules.
Two quotes, same day, same loan, compared on section A and Cash to Close. That is the whole method, and it is usually worth a few thousand dollars for an hour of work.
Sources: CFPB, can my final mortgage costs increase from what was on my Loan Estimate? for the three tolerance categories and the refund remedy, and the CFPB TILA-RESPA Integrated Disclosure FAQs for the three-business-day requirement and the six items that constitute an application.