Every mortgage lender has to use the same three-page Loan Estimate form, so two offers can be laid side by side, line by line. Here is how to do that, which lines actually differ between lenders, and how the federal timing rules work from application to closing.
Key takeaways
- Lenders must send a Loan Estimate within three business days of your application, and you must receive the Closing Disclosure at least three business days before closing.
- Compare the lines that vary by lender: interest rate, points, origination charges (Section A) and lender credits. Then look at the services in Sections B and C.
- Use page 3: In 5 Years, APR and Total Interest Percentage (TIP). Don't judge on APR alone.
- Mortgage credit checks within a 45-day window count as a single inquiry, according to the CFPB.
When you get a Loan Estimate
Under the TILA-RESPA Integrated Disclosure rule, often called TRID, a lender must deliver or mail your Loan Estimate no later than three business days after it receives your application. Regulation Z defines an application as six items: your name, income, Social Security number to pull credit, the property address, an estimate of the property's value and the loan amount you want. Once a lender has those six, the clock starts.
Two protections apply before you have the estimate in hand. A lender can't charge you any fee other than a "bona fide and reasonable fee" for your credit report, and it can't require you to submit documents verifying your information, under 12 CFR 1026.19(e)(2). Other fees wait until you have the Loan Estimate and say you want to proceed.
Set up a fair comparison first
The CFPB warns that "interest rates can change daily, so a difference in rate between two lenders could be because of market changes." Before you compare, make sure every estimate has:
- The same loan type, term and loan amount
- The same date, or as close as you can get
- The same approach to points or lender credits
- The same lock period, if any of them are locked
If one lender quoted something different, ask for a revised estimate that matches. On page 1, the "Rate Lock" line says whether the rate is locked and, if so, when the lock ends, along with the date and time the estimated closing costs expire. Our rate lock guide covers how to time a lock.
Page 1: rate, payment and cash to close
Page 1 has the loan amount, interest rate, monthly principal and interest, the estimated total monthly payment with taxes and insurance, estimated closing costs and estimated cash to close. It also tells you whether the loan has a prepayment penalty or a balloon payment. The CFPB calls both risky features, so a "Yes" on either deserves a direct question.
Page 2: Loan Costs, Sections A, B and C
Loan Costs is where lenders differ most. Total Loan Costs (Section D) is simply the sum of these three sections.
Section A: Origination Charges
These are what you pay the lender and loan originator for making the loan. If you are paying to lower your rate, the points appear first in this section, shown both as a percentage of the loan amount and in dollars. Any other charges you pay the lender or loan originator are itemized below that. Our post on mortgage broker fees explains how originator compensation works.
Compare this section most closely. A lower rate with points is a different offer from a higher rate without them, and Section A shows the price of the difference.
Section B: Services You Cannot Shop For
Third-party services the lender picks for you, such as the appraisal, credit report, flood determination and tax status search. In the CFPB's guide to the forms, this list can also include a homeowner's association certification fee and the lender's title insurance policy.
Section C: Services You Can Shop For
Services the lender requires but lets you choose the provider for, such as a survey, pest inspection or title closing agent. Items related to title insurance start with "Title –" on the form, which makes them easy to find. The lender gives you a written list of providers, and the provider you choose affects how much the final cost can change (more on that below).
Page 2: Other Costs, Sections E through J
Other Costs are set by government, by standard calculations or by things you arrange yourself, so check that each lender used the same assumptions.
- E. Taxes and Other Government Fees: recording fees and transfer taxes.
- F. Prepaids: homeowner's insurance premium, mortgage insurance premium, prepaid interest and property taxes paid in advance.
- G. Initial Escrow Payment at Closing: the starting balance for your escrow account.
- H. Other: items such as owner's title insurance. Anything you aren't required to buy is labeled "(optional)."
- J. Total Closing Costs: Loan Costs plus Other Costs, minus lender credits. Lender credits appear as a negative number.
A big difference in Section F or G between two lenders usually means different assumptions about insurance, taxes or closing date, not a cheaper loan. Ask each lender to use the same figures. You can test your own assumptions with our closing cost calculator.
A Colorado note on title
Colorado's standard residential purchase contract lets the buyer and seller negotiate who selects and pays for the owner's title policy, and the buyer generally pays for the lender's policy, according to the Colorado Division of Insurance. If the seller is paying for the owner's policy under your contract, make sure every lender's estimate reflects that the same way. The Division also requires title companies to keep their filed rates and fees available to the public and encourages buyers to shop around.
Calculating Cash to Close
This table, at the bottom of page 2, turns total closing costs into the amount you bring to closing. It accounts for closing costs financed, your down payment, your earnest money deposit, seller credits and other adjustments.
Page 3: In 5 Years, APR and TIP
The Comparisons table on page 3 is the closest the form gets to an apples-to-apples score.
- In 5 Years shows the total you will have paid in principal, interest, mortgage insurance and loan costs over the first 60 months, and how much of that went to principal. The CFPB calls the total of interest and fees over five years "a good way to compare loan offers." Subtract principal from the total to get it.
- APR reflects "the interest rate, any points, mortgage broker fees, and other charges that you pay to get the loan," per the CFPB. For adjustable-rate loans, it does not reflect the maximum rate, so comparing a fixed loan's APR with an ARM's can mislead.
- TIP is the total interest you would pay over the full loan term as a percentage of the loan amount. A $100,000 loan with $50,000 of total interest has a TIP of 50%.
APR and TIP assume you keep the loan for its full term. If you expect to sell or refinance within a few years, the In 5 Years figure is often the more useful number.
How shopping affects your credit
Each lender will check your credit, but mortgage shopping is treated differently from other credit applications. The CFPB says that "within a 45-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry." The effect is the same whether you talk to two lenders or five, as long as the last check is within 45 days of the first.
So shop in a tight window. To strengthen your score first, see our guide to improving your credit before applying.
How much the final numbers can change
Federal rules limit how far charges can rise from the Loan Estimate to closing, unless there is a valid changed circumstance and a revised estimate:
- No increase: charges paid to the lender, such as origination charges, generally can't go up at all.
- 10% in total: third-party services and recording fees covered by this rule can't rise more than 10% in aggregate.
- No set limit: prepaid interest, homeowner's insurance, escrow deposits and services from a provider you chose who isn't on the lender's list. These only need to be based on the best information the lender had.
Two timing rules matter here. If you don't tell the lender you intend to proceed within 10 business days, or a longer period it sets, it can issue a revised estimate for that reason alone. And once you lock the rate, the lender has three business days to send a revised Loan Estimate.
The Closing Disclosure: check it against your Loan Estimate
You must receive the Closing Disclosure no later than three business days before closing. If it is mailed, you are considered to have received it three business days after it was sent, unless there is evidence you got it sooner. For these closing waiting periods, a business day is every day except Sundays and federal public holidays.
Compare it with your most recent Loan Estimate. On page 1, the CFPB suggests checking the loan term, purpose, product and type, then the loan amount, interest rate, estimated total monthly payment, closing costs and cash to close. If a number differs, ask why. On page 2, compare the services you did and didn't shop for. On page 3, confirm the seller credit matches your contract.
Most corrections don't delay closing. A new three-business-day wait starts only if:
- The APR becomes inaccurate beyond the allowed tolerance
- The loan product changes, for example from fixed rate to a 5/1 adjustable rate
- A prepayment penalty is added
What this means for you
Once you know where to look, comparing Loan Estimates is straightforward. Start with Section A and the rate, check that Sections B, C, F and G use the same assumptions, then use page 3 to see the cost over the time you actually expect to keep the loan. Then compare the Closing Disclosure against your final estimate.
Cedar Home Loans (NMLS #1660298) has offices in Boulder, Vail and Telluride. If you have estimates from other lenders, send them over and we will go through them line by line with you. Start a pre-approval or call (303) 549-5277 to talk with Andrew McBryan (NMLS #304312).
Sources
- CFPB — Compare and negotiate your loan offers
- CFPB — Loan Estimate explainer
- CFPB — What is a Loan Estimate?
- CFPB — Closing Disclosure explainer
- CFPB — What is a Closing Disclosure?
- CFPB — What is the difference between a mortgage interest rate and an APR?
- CFPB — What exactly happens when a mortgage lender checks my credit?
- CFPB — TILA-RESPA Integrated Disclosure Guide to the Loan Estimate and Closing Disclosure forms (Version 2.1, May 2018)
- Regulation Z — 12 CFR 1026.19, Certain mortgage and variable-rate transactions
- Regulation Z — 12 CFR 1026.2, Definitions (application, business day)
- Regulation Z — 12 CFR 1026.37, Content of the Loan Estimate
- Colorado Division of Insurance — Title insurance
