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Compare Mortgage Lenders using Loan Estimate


How to Compare Mortgage Lenders Using Loan Estimate?


With the ever-growing competition, it is essential now than ever to make sure you have the right lending partner. The best way to get the best deal from the market is to compare mortgage lenders using the loan estimate from different lenders in a proper manner.

Today we will discuss how to compare mortgage lenders using loan estimates. This would help you to not only get the best deal for your new purchase or refinance but also help you to save a lot of money in the long run.

How To Choose a Mortgage Lender?


When it comes to choosing your mortgage lender, the rule of thumb is to select the lender with the lowest rate. This is a no brainer, right? However, to stick to the market regulations, many lenders now offer you the same rate.

You would be most likely to run into a scenario where you will find many lenders quoting you the same rate. When this happens, you might want to choose the lender with the lowest cost. We will now understand how to use the loan estimate to compare through multiple lenders.

What is a Loan Estimate?


A loan estimate is a 3-page form that you will receive from a lender after you apply for a mortgage. The loan estimate was brought in to effect on October 2015. (If you applied before October 2015, you might not have received the loan estimate.)

A loan estimate provides essential information with regards to your loan, including the estimated interest rate, monthly payments, and total closing costs for your loan. A detailed explanation of the loan estimate is well explained in our blog post “Understanding Loan Estimate.”

What to Look in Loan Estimate for Comparison?


To compare loan costs from different mortgage lenders, all we need is the closing cost details which are on page two of the loan estimate form. There are three sections on the left-hand side of this page. Item A. Origination Charges, Item B. Services you cannot shop for, and Item C. Services you can shop for.

Item A. Origination charges: These are the charges that your lender is going to charge for originating your loan. This is a part that you might want to consider while choosing a mortgage lender. You would also find something called points and is mentioned in there as “Discount Points”.

It could be a confusing term as it sounds. “Discount points” is not a discount on a mortgage; instead, it is a fee that you need to pay to secure the loan at the interest rate that is quoted by that lender.

Item B. Services you cannot shop for: These are the fees that come with the loan. It includes the appraisal fee, credit check fee, flood determination fee, etc. You might want to include these fees when comparing mortgage lenders.

Item C. Services you can shop for: These are the fees that mostly comes through a title company. You do not have to use these fees while comparing mortgage lenders. Because no matter which lender you go through these fees would be the same.

You can choose to work with your own title company instead of working with one which lender suggests. In most cases, your lawyer will order the title he or she works with.

Other Costs: Here, you would see a few more fees like government fees, prepaid, and escrow payments. These items can be ignored when comparing mortgage lenders because the lenders do not charge them.

The only item that you need to account for is the “Lender Credit”. This is the credit that the lender gave you for your loan. For obvious reasons, the “Lender Credit” effectively reduces the cost of your loan.

How to Calculate Loan Cost for Mortgage Lender Comparison


Based on what we have discussed so far, the loan cost that you can use to compare mortgage lenders can be calculated by Item A(Origination fees) + B(Services you cannot shop for) – Lender Credit.

For example, one of the lenders has quoted Origination fees as $1500. Services you cannot shop for are $850. Lender Credit is $150. Another Lender has quoted Origination fees are $1200. Services you cannot shop for are $900. Lender Credit is $420

Lender 1: $1,500 + $850 – $150 = $2,200
Lender 2: $1,200 + $900 – $420 = $1,680

Considering the above example that both the mortgage lenders are quoting the same interest rate, it makes logical sense to choose Lender 2 as the closing cost for Lender 2 is lower than Lender 1.

Conclusion


You have to agree that you get the best when there is a competition. By using this simple calculation, you can now compare mortgage lenders and find the best one for your home purchase or refinance. Always remember, when lenders compete, you win.


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