Getting a mortgage can feel like it comes with a small mountain of paperwork. There’s one document that you want to pay special attention to, though. Lenders are legally required to make sure your loan estimate lays out key details about your loan. Comparing loan estimates from different lenders can help you find the best mortgage for you. 

Understanding loan estimates

When you’re trying to buy a house, your mortgage is one of the biggest pieces of the puzzle. Thanks to the wealth of online tools that are available today, you might already be crunching the numbers yourself. If you try different mortgage calculators, though, you’ll probably notice that they give you slightly different results. 

That’s what makes a loan estimate so powerful. With this document, you get clarity from the lender about what to expect. Lenders are legally required to provide you with a loan estimate within three days of receiving your mortgage application.

They can’t just provide a loose guess about what your loan will look like, either. The loan estimate is required to follow certain formatting. It spans three pages and lays out important information about your potential mortgage on each.

Page one

At the top-right of the first page of your loan estimate, you’ll see important information like:

• Your loan term (e.g., 15 or 30 years)
• Whether your mortgage comes with a fixed or adjustable interest rate
• Your loan type (i.e., conventional or backed by the FHA or VA) 
• If you have a rate lock and, if so, how long it lasts

You’ll also see your loan terms, including your:

• Total loan amount
• Interest rate, and whether or not it can change after closing
• Estimated monthly principal and interest (P&I) payment 

Mind that loan terms section. It will also tell you if your loan comes with features that can affect your total cost, like the potential for prepayment penalties or a balloon payment. 

Also, you should know that the loan terms section gives you a P&I estimate, but that’s not the same as your estimated monthly payment. That’s because the total you hand over each month includes payment for things like property taxes, homeowners insurance, and, in some cases, mortgage insurance. 

The next section of your loan estimate covers projected payments, and it should lay all of that out for you. The estimated total monthly payment is what you want to look at there. That’s the best gauge of how much you’ll likely need to hand over each month if you choose this loan. 

Finally, page one gets into closing costs, or how much you’ll need to pay to finalize your loan and get your keys. 

Page two

This page details all of the different closing costs you’ll need to pay if you choose this lender. That’s a big part of why financial pros recommend that you compare loan estimates. If two lenders are offering you similar loan terms but one has fewer fees outlined on this page, they’re probably your best bet. 

Note that this page breaks some of the closing costs into two distinct buckets: costs you can’t shop for and costs you can. The costs you can shop for are just there to give you a ballpark idea of how much some of these lender-required things will cost. You could potentially find that service for cheaper. 

The costs you can’t shop for, though, are locked in with that lender. If you choose that loan provider, you need to be ready to pay them. 

Page three

The top of page three gives you the name and contact information for your loan officer. As you compare loan estimates, if you have questions, that person is a great place to start. 

Next, you’ll see a section titled, “Comparisons.” As that header suggests, this is a particularly useful area to look at as you’re evaluating different lenders. 

Specifically, make sure you evaluate annual percentage rates (APRs) as you compare loan estimates. The APR measures how much that loan will cost you annually, including not just interest but also some lender fees. The lower the APR, the better. 

Why it’s important to compare loan estimates

First, loan estimates help you tell if you’re comparing apples to apples. To see which lender can give you the best deal, you want to have the same loan term, product, and type marked in the top-right section on page one. 

As you compare loan estimates, look specifically at the:

• Monthly principal and interest payment (page one)
• Estimated total monthly payment (page one)
• Estimated closing costs (page one)
• The cost of individual items the lender will require you to pay for (“Services You Cannot Shop For” on page two)
• The APR (page three)

Comparing all of these factors for the loan amount you need gives you a much clearer idea of which lender can offer you the best mortgage. 

Also, it gives you the chance to check for any errors. If there’s anything on your loan estimate that doesn’t line up with what you expected, reach out to your loan officer to get it corrected. 

Using your loan estimate to your advantage

Your loan estimate can serve as an asset to help you get into your ideal mortgage. If there’s one lender you really like or that offers a feature you want (maybe help with closing costs or a long rate lock), check their loan estimate. If it doesn’t compete with another lender’s in some key areas, you can go to them and ask if they’re willing to negotiate. Sometimes, lenders will move the needle on things like origination fees or the cost of an appraisal in order to win your business. 

If you’re not quite at the loan estimate stage yet, it’s still not too early to start comparing lenders. To see what kind of rates are available to you from various lenders today, use our rate tables. These can help you pinpoint lenders with which you want to apply. You’ll get the loan estimate a few days after you send in that application.  

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