You’ve done the work: you talked to multiple lenders, submitted your applications, and now the Loan Estimates are rolling in. Staring at these official-looking, three-page documents can feel overwhelming, but this is the single most important moment for you to save money on your mortgage.
All lenders are required to use the same standardized Loan Estimate form. This is fantastic news for you! It was designed specifically to make it easy to compare offers “apples-to-apples.” The key is knowing exactly where to look.
Instead of getting lost in the dozens of line items, you can make an informed and confident decision by focusing on these four critical areas.
1. The True Cost of Borrowing: Interest Rate vs. APR
This is the number everyone focuses on, but there’s a nuance. You need to look at two figures on Page 3 of your Loan Estimate.
- Interest Rate (Page 1): This is the percentage used to calculate your monthly principal and interest payment. It’s a major factor, but it doesn’t tell the whole story.
- APR (Annual Percentage Rate, Page 3): This is the more powerful comparison tool. The APR represents the total cost of borrowing, including your interest rate plus many of the lender’s fees and charges, expressed as a percentage.
Example:
| Lender A | Lender B | |
| Interest Rate | 6.500% | 6.625% |
| APR | 6.675% | 6.750% |
At first glance, Lender A looks cheaper with the lower interest rate. But when you compare the APR, you see that Lender A’s fees are slightly lower, making it the more affordable loan over the long term.
What to look for: The loan with the lower APR is generally the better deal, assuming all other loan terms are identical.
2. Lender Fees & Origination Charges (Page 2, Section A)
This is where lenders have the most control and where you can spot the biggest differences. Section A: Origination Charges on Page 2 shows you exactly what the lender is charging you to create the loan.
These fees can have different names—processing fee, underwriting fee, application fee—but they all go to the lender. Some lenders will also list “Points” here, which are fees paid upfront to get a lower interest rate.
Example:
- Lender A (Section A):
- 0.250% of Loan Amount (Points): $1,000
- Underwriting Fee: $995
- Total Origination Charges: $1,995
- Lender B (Section A):
- Origination Charge: $1,500
- Total Origination Charges: $1,500
In this case, Lender B is charging nearly $500 less in direct fees, even if their interest rate is slightly higher. This is a crucial trade-off to consider.
What to look for: Pay close attention to the total in Line A. This is a direct, negotiable cost that varies significantly between lenders.
3. Total Monthly Payment (Page 1)
While the interest rate and fees determine the loan’s cost, the Projected Payments section on Page 1 tells you what you’ll actually be paying out of your bank account each month.
This section is broken down into:
- Principal & Interest: The core loan payment.
- Mortgage Insurance (if applicable): Required if you put down less than 20%.
- Estimated Escrow: An amount the lender collects to pay your property taxes and homeowners insurance on your behalf.
Example:
| Lender A | Lender B | |
| Principal & Interest | $2,528 | $2,551 |
| Mortgage Insurance | $75 | $75 |
| Estimated Escrow | $450 | $450 |
| Est. Total Monthly Pmt | $3,053 | $3,076 |
What to look for: Ensure the “Estimated Escrow” amount is similar on all estimates. Lenders don’t control your taxes and insurance, so a lower estimate here isn’t a real saving. Focus on the combined Principal & Interest and Mortgage Insurance, as that’s what the lender controls.
4. Estimated Cash to Close (Page 2)
This is the bottom-line amount you’ll need to bring to the closing table. It’s not just your down payment; it includes all the loan costs and prepaid expenses. You can find this total on the bottom right of Page 2, in Section J under “Calculating Cash to Close.”
This section also shows any Lender Credits (Section J). A lender credit is money the lender gives you to help cover closing costs, usually in exchange for a slightly higher interest rate.
Example:
- Lender A: Estimated Cash to Close: $25,500
- Lender B: Has a $2,000 Lender Credit. Estimated Cash to Close: $23,500
Lender B requires less money upfront, which might be critical for your budget. However, remember this credit likely comes with a higher interest rate, meaning a higher monthly payment over the life of the loan.
What to look for: The final “Estimated Cash to Close” figure. If one is much lower than the others, check for a Lender Credit and understand the trade-off with your interest rate.
Frequently Asked Questions (FAQs)
Q: Should I just pick the loan with the lowest interest rate? A: Not necessarily. A loan with a slightly higher rate but significantly lower fees (and thus a lower APR) can be a better financial deal over the long run. Always compare the APR.
Q: The property taxes and insurance estimates are different between lenders. Why? A: Lenders are just providing an estimate for these third-party costs. They don’t control them, and the actual amounts will be the same regardless of which lender you choose. Don’t let a lower escrow estimate sway your decision.
Q: Can I negotiate these fees? A: Absolutely! The fees in Section A (Origination Charges) are the most negotiable. If you have a Loan Estimate from Lender A with lower fees, you can show it to Lender B and ask them to match it. This is one of the biggest benefits of shopping around.
Make Your Decision with Confidence
By systematically comparing these four key areas—APR, lender fees, total monthly payment, and cash to close—you can cut through the noise and clearly see which offer is best for your financial situation. Don’t be afraid to ask lenders questions and use competing offers as leverage. This is your loan, and you are in control.
