How Do I Compare Two Loan Estimates and Tell Which One Is Actually Cheaper?

Two Loan Estimates for the same home can be thousands of dollars apart on the front page and within a few hundred dollars of each other on the only part either lender controls. That happens because most of the form is not the lender's price at all.

To compare two Loan Estimates, add up the charges the lender itself sets, which are section A plus section B on page 2 less any lender credit, and compare those subtotals. The rest of the form is each lender's estimate of bills you would pay to someone else no matter which lender you choose.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, NMLS #483943, through C2 Financial Corporation. I'm licensed in fifteen states. This page is the line-by-line way to read two of these forms, so the bigger number on page 1 does not pull you toward the wrong one.

The numbers on the form the lender actually chose

The Loan Estimate is a standardized federal form. Regulation Z, 12 CFR 1026.37, fixes its layout, its section letters and the rules for how the lines in each section are listed, which is why every lender's version looks the same. That is the useful part. Section A on one form covers the same kind of charge as section A on the other, so you can put the two side by side and read across, section by section.

Page 2 is split into two halves, and that split is the whole comparison.

Loan Costs is the lender's half.

• Section A, origination charges. The lender's own price for making the loan: points, an origination fee, underwriting, application. This is where a lender's pricing shows up on paper.
• Section B, services you cannot shop for. Real third-party work, such as the appraisal, the credit report and the flood determination. The lender does not keep this money, but it picks who does the work, so the number is the lender's to get right.
• Section C, services you can shop for. Title work, a survey, a pest inspection. The lender gives you an estimate and a written list of providers, and you are free to use someone else.

Other Costs is everybody else's half.

• Section E, taxes and government fees. Recording charges and transfer taxes, set by the state and the county where the home is.
• Section F, prepaids. Homeowners insurance paid up front, prepaid interest for the days after closing, and any property taxes paid at closing.
• Section G, initial escrow. The opening balance of your escrow account.
• Section H, other. Owner's title insurance and anything else the transaction needs.

Sections E through H are not the lender's price. They are that lender's estimate of bills attached to the home and to you. Buy the same home on the same day and those bills come out the same whoever's logo is at the top of the form. The closing costs page walks through what goes in each bucket. For comparing two lenders, the point is simpler: half of page 2 is not a comparison at all.

Cash to close is the wrong number to compare

The number that draws the eye is Estimated Cash to Close, because it is large, bolded and on page 1.

It is also the number with the most guesswork in it. It carries the prepaids, the escrow opening balance and the taxes. A lender that estimates your homeowners insurance a few hundred dollars low, and funds three months of property taxes into escrow where the account will actually need eight, produces a smaller headline figure. Not one of its own charges had to be cheaper for that to happen.

Nobody has to be doing anything wrong for this to happen. One lender uses a cautious default for escrows and another uses a thin one, and two estimates of the same real bill come out different. The gap between states is large enough that a national assumption is usually wrong in a predictable direction.

So if you choose on cash to close, you are rewarding whichever lender guessed lowest about money that was never theirs.

The federal rule that says how far each line is allowed to move

Federal rule already sorts the form into prices and guesses for you. The good-faith rules at 12 CFR 1026.19(e)(3) put every line on a Loan Estimate into one of three groups, by how much it is allowed to move between the estimate and the final Closing Disclosure.

Cannot increase at all. Section A origination charges, section B services you cannot shop for, and transfer taxes. If one of these goes up, the lender generally has to make up the difference.

Can rise, but only by ten percent as a group. Section C services when you use a provider from the lender's written list, together with recording fees. The ten percent applies to the group total, not to any single line.

Can move freely, in good faith. Prepaid interest, property insurance, the initial escrow deposit, property taxes, and any service you shop for with a provider who was not on the lender's list.

Those three groups tell you what each number is. A figure the lender is not allowed to increase is a price it has committed to, and a figure that is allowed to move is an estimate of somebody else's bill. When you compare the committed prices you find out which lender is cheaper, and when you compare the estimates you only find out which lender guessed lower.

How to compare two Loan Estimates, step by step

Six steps, in order.

1. You confirm both forms describe the same loan. On page 1, you are looking for the same loan amount, the same product, the same term, the same choice about whether taxes and insurance are collected with the payment, and the same answer in the rate-lock box. If one quote is locked and the other is floating, or the down payments differ, you cannot line the two up against each other, because you would be comparing two different loans.

2. You check the issue dates. Pricing moves daily, so two estimates from two different weeks are priced off two different markets. If they are more than a day or two apart, it is worth asking for a fresh one before you do anything else.

3. You add section A plus section B on each form. That subtotal is the lender-controlled, cannot-increase figure. Then you subtract any lender credit shown on page 2. The smaller number belongs to the lender charging less to make the loan.

4. You compare section C against section C only, and only when both lenders are quoting from their own provider lists. If one form assumes you will use its title company and the other assumes you will bring your own, they are answering different questions.

5. You set sections E through H aside for the comparison, then use them as a check. They should not decide anything between two lenders. They are still worth reading, because a prepaid or escrow line far below what you already know your insurance and taxes to be tells you the cash you will need at closing is higher than the page says.

6. You confirm with page 3. The In 5 Years box, which 12 CFR 1026.37(l) requires on every Loan Estimate, shows two figures. One is the total you will have paid in principal, interest, mortgage insurance and loan costs over five years, and the other is how much principal you will have paid off. That is closer to an apples-to-apples figure than anything on page 1, and it is worth reading next to the APR rather than trusting either one alone. APR is a useful measure with blind spots, and it is least reliable when the two offers carry different points.

If a step turns up a mismatch, the fix is one email: ask both lenders to price the same loan amount, the same product and the same lock period, on the same day, and reissue. That is a routine request, and a lender should be glad to do it.

The mistakes that make the wrong offer look cheaper

Shopping the total. Comparing the two big page-1 numbers and stopping there. It is the fastest way to pick the lender with the lowest guess.

Rewarding the low guess. Treating a smaller escrow or insurance line as a saving. That money gets collected either way, and the low figure is corrected before you close.

Ignoring the credit. A lender credit lowers your closing costs and is paid for with a higher rate. So a form showing a large credit is showing you the cost of that credit in the rate, and it is worth pricing both sides of it. The same lever runs the other way with points and buydowns.

Assuming the provider list is mandatory. Section C lists the services the lender lets you shop for. Using the lender's list keeps the ten percent group protection on those lines. Going outside the list gives up that protection, and it can still cost less.

An illustration, so the arithmetic is visible

Numbers below are made up to show the mechanism. They are not a quote.

The same client, the same home, the same $400,000 loan, both forms issued the same morning, both locked.

Lender A

• Section A, origination charges: $3,900
• Section B, services you cannot shop for: $1,150
• Section C, services you can shop for: $2,150
• Sections E through H, taxes, prepaids, escrow and owner's title: $6,700
• Total closing costs: $13,900

Lender B

• Section A, origination charges: $5,200
• Section B, services you cannot shop for: $1,100
• Section C, services you can shop for: $2,100
• Sections E through H: $4,300
• Total closing costs: $12,700

Lender B looks $1,200 cheaper, and on the totals alone B is the one to pick.

Now run step 3. Lender A's section A plus section B is $5,050. Lender B's is $6,300. On the only part either lender sets, and the part neither one is allowed to increase, Lender A is $1,250 cheaper.

The gap came from sections E through H, where B is $2,400 lighter. Reading those lines shows why. B funded three months of property taxes into the escrow account where A funded eight, and B carried an insurance premium several hundred dollars below the quote the client already had in hand. Neither number is B's to control, and both will be corrected before closing.

Correct them, and B's total goes to about $15,100 against A's $13,900. The offer that looked like it saved $1,200 costs $1,200 more, and the whole reversal was in two lines that were never a comparison between lenders.

Once you know which one is cheaper

You can take the cheaper lender-controlled subtotal back to the other lender and ask them to match it. That request is normal, it is what the standardized form exists to make possible, and the worst that happens is they say no. Asking does not obligate you to anything, and you can still change lenders after a pre-approval, right up until you close.

If you have an estimate from another lender and you would like a second set of eyes on it, you are welcome to email it to me at jeff@solverya.com. I will tell you what I see, line by line, whether or not you ever work with me.

If you would rather see where a competitive number lands first, you can run your own scenario: live pricing for your loan amount and your state, with no credit pull, no account, and nobody calling you. You can bring what you learn back to whichever forms are on your kitchen table.

You can choose whichever of these fits once you are ready for the next step. You can hit Apply to start your pre-approval, call me at (843) 765-0000, or email me at jeff@solverya.com. If I sent you a personal page, the schedule button at the top of it lets you pick a time. I won't call you unless you decide you want to talk.

Nothing here is a loan approval, a denial, a commitment to lend, or tax advice. Regulations and filed fee schedules change, and what applies to a specific transaction is worth confirming rather than assuming.

Common questions

What is the difference between a Loan Estimate and a pre-approval letter?

A pre-approval letter is a lender's opinion about a client's file, written for a seller to read. A Loan Estimate is a standardized federal disclosure about a specific loan on a specific home, issued no later than the third business day after the lender receives your application, and its charges carry legal limits on how far they can move. A letter costs the lender nothing to write, while an estimate commits the lender to parts of its own pricing.

Can a lender change the fees on a Loan Estimate before closing?

Some of them, within limits. Origination charges, services the lender selected and transfer taxes generally cannot increase at all. Services shopped from the lender's own list, grouped with recording fees, can rise up to ten percent in total. Prepaids, the initial escrow deposit and insurance can move in good faith because they are estimates of outside bills. A valid changed circumstance, such as a different loan amount or a property issue, can reset those baselines, and the lender has to reissue the form.

Do I have to use the title company my lender suggests?

No. Section C exists because those services are shoppable. Using a provider from the lender's written list keeps the ten percent group protection on those charges. Going outside the list gives up that protection, and it can still be the cheaper choice. In some states, local custom or the sales contract already settles who selects the closing agent, so the practical answer depends on where the home is.

Is the lowest APR always the cheapest loan?

No. APR spreads certain upfront costs across the full term, as if you keep the mortgage for the whole thirty years. That makes a loan with high upfront points look better than it is for someone who sells or refinances in five. Two offers with the same APR can cost very different amounts over the years a client actually holds the loan. It is worth reading the APR next to the In 5 Years box rather than on its own.

How many Loan Estimates should I get?

Two is enough to see the pattern and three is plenty. Getting them close together matters more than getting many, because pricing moves daily and estimates from different weeks are priced off different markets. Shopping several mortgage lenders inside a short window is also generally treated as a single inquiry by credit scoring models, so checking with several lenders affects your score about the same as checking with one.

The two estimates are for different loan amounts. What now?

You can ask for a reissue rather than adjusting in your head. Section A often contains points priced as a percentage of the loan, so a different loan amount changes the lender's charge without the lender changing its pricing. You ask both for the same loan amount, the same product, the same term and the same lock period, dated the same day. Comparing anything else measures the difference between two scenarios rather than between two lenders.